India’s Nuclear Liability Dilemma

India’s Nuclear Liability Dilemma

U.S. concerns over India’s nuclear liability law are likely to come up during President Obama’s trip to India, but expert Ashley Tellis says the trip is unlikely to yield alterations that allow a level playing field for U.S. companies.

November 3, 2010 3:25 pm (EST)

To help readers better understand the nuances of foreign policy, CFR staff writers and Consulting Editor Bernard Gwertzman conduct in-depth interviews with a wide range of international experts, as well as newsmakers.

India’s new civil nuclear liability law, which is causing a rift with U.S. nuclear suppliers, is likely to come up during President Barack Obama’s trip to New Delhi. India--which last month signed an international treaty governing global civil nuclear liability, the Convention on Supplementary Compensation for Nuclear Damage (CSC)--argues that its national law is consistent with the international framework. But Ashley Tellis, involved in negotiating the India-U.S. civil nuclear agreement while serving as a senior adviser for the U.S. State Department, agrees with critics who contend India’s proposal to seek legal redress against nuclear suppliers is a sharp deviation from the international liability regime. Tellis says the United States would like New Delhi to make changes to the law that creates a level playing field for U.S. companies, and Obama’s trip has raised the profile of the issue but is unlikely to be enough to yield a resolution. On the question of whether this latest obstacle to India-U.S. nuclear cooperation spells a drawback to the 2008 nuclear deal touted as the cornerstone of U.S.-India strategic relationship, Tellis says the deal’s objective--to empower India--has already begun to be realized.

Why does India feel the need to have a law that holds nuclear suppliers liable?

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There are two reasons for that: a domestic reason and a political reason. The domestic reason is that the Department of Atomic Energy--which is going to be the sole operator of India’s nuclear plants for some time to come--saw its interest served by having legislation that would shift liability at least partly to suppliers. So it drafted legislation that would, at the formal level, comply with the CSC by making the operator the nodal point for liability. But at a material level, it bequeathed the operator the right to seek legal recourse against suppliers on the grounds that accidents could by caused by defects in the technologies supplied.

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At the political level, it’s more complex. The government of Prime Minister Manmohan Singh was eager to have a text that would simply mirror the requirements of the CSC. The first draft of the bill that the government introduced essentially complied with the substance of the CSC. The problem, however, is that the prime minister and the Congress do not have the numerical majority to carry this kind of legislation through on their own. So the prime minister was forced to seek the assistance of the opposition to cobble together the numbers required to pass the bill.

In between the initial introduction of the bill, and the cobbling together of support, two things happened. One, the whole issue of the Union Carbide accident in Bhopal (BBC) blew up again in the public sphere in India because of court decisions about how India handled the aftermath of the Bhopal accident twenty years ago. And the question of what happens to liability in the case of catastrophic accidents became, once again, a staple of public debate.

Second, there seems to be some interesting, not entirely conclusive, evidence that some officials of the Indian atomic energy establishment reached out both to members of the press and to members of the opposition in order to force a change in the original text of the bill, which was satisfactory to the international community and almost entirely met the requirements of the CSC. And the change that they forced was essentially the dilution of the liability clauses.

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"The United States has only one objective: to create a level playing field for U.S. companies. The United States wants to make certain that because U.S. companies are private-owned, they do not end up being at the receiving end of this legislation."

Some nuclear industry representatives and experts in the United States have said that India’s liability law is inconsistent with international norms. India disagrees. What is the truth?

It would be very hard to make the case that current Indian legislation is consistent with the CSC. I think there are points of convergence. The fact that the operator is the nodal point for channeling liability is a point of convergence with the CSC. But the fact that the operator then reserves the right to seek legal redress against suppliers on the grounds that an accident may have been caused due to defective material supplied or defective technology represents a sharp deviation from the CSC.

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The CSC is really an effort to strengthen the prospects of nuclear power expansion globally. Everyone understands that nuclear power is potentially a very powerful energy source commercially. But it also has risks. The probability of accidents is no doubt small, but the costs should such an accident occur, are extremely high. Given this fact, how do you create conditions that would enable the expansion of nuclear power? The CSC is one effort to help that process along.

And so, what the CSC has done is to attempt to take the best of previous liability conventions and stitch them together into a new framework. First, it says all suppliers are indemnified against any claims that may arise in the context of a nuclear accident. Second, it requires that all liability is absolutely and solely channeled to the operator. And the operator compensates for the indemnification of suppliers by taking out insurance--or working with national governments to create an insurance pool--which allows it to satisfy any claims, should an accident occur. Third, the CSC creates a multinational supplementary compensation fund, where everyone who signs on to the convention contributes to this pool of money, which would be available to any operator as additional resources in the event of an accident.

So, the idea behind making the operator absolutely and solely liable is because there is an assumption that: 1) there will be money available from national insurance pools, which the operator is required to create and 2) there will be money available from the supplementary compensation pool, which will be an international fund that will be sustained through international contributions. The core of the CSC, therefore, is to prevent operators from triple dipping. That is, being able to access the national insurance pools, being able to access the international supplementary compensation fund, and then being able to sue suppliers in courts of law to get yet a third stream of compensation.

India signed the CSC in October. Does this change anything?

Yes, it does, because it is telling private industry that India intends to comply with the norms and rules that are encoded in the CSC. When India ratifies the agreement, it will have to come up with some solution that in effect reconciles the tensions that currently exist between the two frameworks [national legislation and the CSC].

But other signatories to the CSC also have reservations. For instance, the United States does not agree to the jurisdiction procedures as laid out under the CSC.

And that is exactly the kind of issue that still remains to be resolved. But on the core question of whether liability is going to be channeled exclusively and absolutely to the operator, all the signatories to the CSC are in agreement. And so, when it comes time to bring the convention into force, I think all these issues will have to be reconciled. And it’s not just India. It will have to be the United States, South Korea, and all other signatories as well.

Mostly, the concerns over the liability bill have been in the United States. French and Russian companies have already begun projects with India. Are they similarly concerned?

I have had Russian representatives over the years tell me directly that "We don’t care what India’s laws say. Once we hand over the keys to a completed nuclear power plant in India, all liability entirely rests with the Indians."

From the Russian point of view, they think of this legislation as being completely academic. Because even if it were found that Russia was liable because of some product defects, there is simply no recourse in a material sense that any Indian plaintiff can have to enforce that judgment. And so the Russians just don’t care what the Indians say. Now, in the case of the United States, that’s obviously very different because our approach to the judicial process and the idea of having a rule-defined set of interactions is very different from Russia.

France has companies that are partly owned by the state. They have significant concerns about Indian law. But the French position seems to be somewhat different. The French position is, "Well we don’t know if the CSC is actually going to come into effect after all, so we are willing to give India the benefit of the doubt for now. But we do want to make certain that India does adhere to some international liability regime, even if it’s not the CSC, because we are not certain about what the status of the CSC eventually will be." So, it’s midway between the Indian position that there is complete convergence with the CSC, and the U.S. position, which is to say "No, there is substantial deviation."

"We got into this game because we wanted to empower India and help us maintain a certain geopolitical order in Asia. We are well on the way to doing that."

Are the Indian suppliers concerned as well?

Yes, in fact, both the Nuclear Power Corporation of India Ltd. (NPCIL) as well as major Indian corporations like Larsen & Toubro, which supply containment vessels, reactors, etc. have protested that this law will prevent them from being able to continue to do business with the Indian government.

What changes is the United States hoping for in the Indian law?

The United States has only one objective: to create a level playing field for U.S. companies. The United States wants to make certain that because U.S. companies are private-owned, they do not end up being at the receiving end of this legislation. And the U.S. government is really indifferent to what kind of solution the Indian government comes up with, because their only interest is to make certain that American companies are not kept out of the competition because of these constraints.

Is there any sort of a compromise expected during President Obama’s trip to India?

I think that’s something that both sides are working on. And it’s not simply driven by the trip, though the trip has obviously raised the profile of the issue. I think it’s a fundamental question that has to do with the ability of the U.S. nuclear industry to participate in India’s nuclear expansion at all. And that is an issue that transcends the visit. I just don’t know whether they will be able to find a solution in time for the visit.

The India-U.S. nuclear deal has been often touted as the cornerstone of this strategic relationship. Does this spell a drawback for the relationship?

That’s not my view. The reason why we got involved in these negotiations with India was because there was a strategic interest in strengthening India’s national capacity over the long term. I believe that that has already begun; the fact that the Russians and the French can go in there and build nuclear power plants--and hopefully, U.S. companies will at some point be able to do the same--proves that this is the beginning of the process of strengthening India’s rise in power.

Now, does this mean that we don’t want to iron out the present wrinkles? Of course not. We do want U.S. firms to have as much of the share of the Indian nuclear expansion pie as possible. But again, there are tactical questions and there are strategic questions. The issue of whether U.S. firms get a share of the Indian nuclear business is a tactical question. The strategic question is: Overall, net-net, is this helping India’s growth in power? The answer to that question is "yes," and so I am satisfied. We got into this game because we wanted to empower India and help us maintain a certain geopolitical order in Asia. We are well on the way to doing that.


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