If NPCIL’s liability goes up, so does the reactor supplier’s. It is this legal ambivalence that gives room for negotiations.

That Nuclear Power Corporation India Ltd (NPCIL) and Westinghouse have signed a pact for supply of reactors is only half the story. The key, un-narrated part is: What of the American (and French and Russian) concerns over the Civil Liability for Nuclear Damage Act?

The Indian law says that in case of an accident, the company that supplied the equipment cannot escape liability if its gear is found to be faulty and the cause of the disaster.

In India, all nuclear power plants are run by public sector NPCIL.

If a disaster happens, it is NPCIL’s responsibility to pay damages to the victims. The question is whether NPCIL has a right to be reimbursed by the company (foreign or Indian) that supplied the faulty reactor.

The law gives NPCIL this right, even if such a ‘right to recourse’ is not mentioned in the contract between NPCIL and the reactor supplier.

Americans fear that this could mean unlimited liability to their companies. The compensation bill for industrial accidents could run into billions of dollars.

No unlimited liability

However, the Indian nuclear establishment seems to be taking the stand that the equipment supplier’s liability shall not be unlimited. India has devised a system for paying compensation to victims. First, it shall be NPCIL’s responsibility, as the operator of the plant, to pay the victims, whether or not it is at fault. Fair enough, because if a disaster happens following a terrorist attack, NPCIL can hardly expect the perpetrators to pay compensation to the victims. But the liability of the supplier to reimburse NPCIL kicks in only if the fault is proved to be the supplier’s.

However, the rules cap NPCIL’s liability at Rs 1,500 crore, beyond which the Indian government will pay. Under the Convention on Supplementary Compensation, an international pool will reimburse the government up to 300 million SDRs (Special Drawing Rights), valued today at Rs 2,800 crore. If the bill goes beyond Rs 1,500 crore plus 300 million SDRs, it is the Indian taxpayer who bears the burden.

Much has been said about the controversial Clause 17 and its three sub-clauses, which deal with the ‘right to recourse to the supplier’. As Attorney-General of India Goolam Vahanvati pointed out recently, the law does not mandate that NPCIL put the ‘right to recourse’ clause in a commercial agreement. But the Civil Liability for Nuclear Damage Act automatically gives the operator (NPCIL) the right. However, since NPCIL’s liability is capped at Rs 1,500 crore, the supplier’s maximum liability can also only be that much.

The Clause 46 concern

But foreign reactor suppliers have another concern. A senior official of India’s nuclear establishment told this correspondent recently that the Americans are worried more about Clause 46, which says that if there is a nuclear incident, NPCIL can be sued under any Indian Act, not just under the Civil Liability for Nuclear Damage Act.

It is not clear if the cap of Rs 1,500 crore on NPCIL’s liability is only under the nuclear liability law, or under all laws. If NPCIL’s liability goes up, so does the reactor supplier’s. This legal ambivalence gives room for negotiations.

Oxford University lecturer Arghya Sengupta, who has studied the issue closely, said: “Ït does seem that Rs 1,500 crore is the maximum the operator shall pay.”

kPerhaps, the reactor supplier can take comfort from the fact that it is liable to pay only if its equipment is found to be faulty.

It may not be very easy to pin the cause of a nuclear accident on one equipment supplier.

Experts point to the Bhopal gas tragedy, and say that it could never be established what caused water to seep into the MIC tank and set off the gas leak. In nuclear plants, pinpointing the cause of an accident is even more difficult.


(This article was published on October 2, 2013)
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