Tag Archives: nuclear liability

The Final Chapter of the Kudankulam Saga

02 Fri Jun 2017

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On June 01, India and Russia concluded an agreement that would begin work on the fifth and sixth reactors at Kudankulam. The deal was finalised during Prime Minister Narendra Modi’s visit to St Petersburg for the 18th annual bilateral summit between the two nations and ironed out the technicalities to a 1988 Memorandum of Understanding signed by Mikhail Gorbachev and Rajiv Gandhi for the development of nuclear energy in southern Tamil Nadu. Completion of this project would make Kudankulam India’s largest nuclear park, responsible for 40 percent of India’s total nuclear energy capacity.

Although the original MoU envisioned a total of eight reactors at the Indian site, a subsequent negotiation in 2008 reduced that number to six. No size of the reactor had been mentioned in the agreement but was mutually understood to be the 1,000 MW VVER-1000. In 2014, Russia offered its latest Gen 3+ VVER-1200 for future Kudankulam installations but this suggestion was nixed by India as there were no working models of the design; the first VVER-1200 reactor became commercial just three months ago at Novovoronezh.

The deal for the last two reactors at Kudankulam comes at an interesting time in international nuclear politics. Rosatom has been strongly pushing nuclear exports over the past five years and secured agreements in several countries such as Hungary, Bolivia, Argentina, Indonesia, Turkey, Egypt, Nigeria, Algeria, Bulgaria, Finland, and others. As the only company in the nuclear sector that is capable of offering the full spectrum of services from mining to reprocessing, Rosatom has a powerful advantage over its competitors in new markets. However, nuclear sales come with financing agreements and it has been questioned if the Russian state-owned company can indeed afford to float such lines of credit. In fact, Rosatom had offered to partner with India in fulfilling its agreements for probably similar concerns. This deal confirms valuable additional business for the Russian nuclear giant when it needs it most, especially considering the short period of 10 years for the $4.2 billion loan Russia has extended India for Units V and VI.

The finalisation of Kudankulam V and VI also comes on the heels of India’s decision to proceed with 10 indigenous 700 MW reactors if foreign suppliers cannot be relied upon to assist with India’s nuclear aspirations. If Delhi does succeed in streamlining the indigenous route, a valuable customer with enormous needs would be lost to the international market. Despite its frustrating vacillations, India still remains one of the hopes of a nuclear renaissance.

It is also hoped in some quarters that indigenous nuclear development will give India additional leverage to force its way into the Nuclear Suppliers Group. The emergence of a parallel market in which Delhi can set its own rules while broadly following international non-proliferation and safety protocols is a threat to the Western-led international nuclear regime. Although this is no more than a fantasy, it is hoped that taking even small steps towards such reliance will soften the stand of the nuclear cabal. Given the new mantra of Make-in-India and Modi’s emphasis on developing Indian industry, it is not inconceivable that a few benefits are also seen in domestic Indian nuclear industry.

There is no clear information yet as to what the cost of Kudankulam V and VI will be. The first two units were built for ₹17,270 crores but the price for the third and fourth units skyrocketed to ₹39,747 crores. The agreement for the fifth and sixth units commits Russia to a loan of approximately ₹27,000 crores to cover the construction costs of the reactors but reports make no mention of what the total cost is likely to be. If the agreement on Kudankulam III and IV – in which India secured a $3.4 billion loan towards construction costs – is any indicator, the last two VVER units at the site are likely to cost around ₹51,000 crores.

As usual, India’s Nuclear Power Corporation (NPCIL) will construct the plant with guidance from Russia’s Atomstroyexport. No information has been released on the timeframe for Kudankulam V and VI to begin commercial operation, or for that matter, the earlier two units.

The agreement for the fifth and sixth units follows quickly on the heals of the agreement for Kudankulam III and IV. The infusion of two more foreign reactors will not salvage India’s moribund nuclear energy programme but it comes at a time when more and more people are asking questions about India’s relations with Russia. While Delhi is perceived to have drifted towards the United States, Moscow flirts with Islamabad to India’s chagrin. Despite all the diplomatic packing peanuts, defence (technology) agreements have formed the bedrock of India-Russia relations ever since Stalin and the new Kudankulam will give flagging relations a shot in the arm. As long as cooperationin the strategic realm remains strong, both Moscow and Delhi will be able to weather any storms since their relations are not based on a sense of community or shared international vision.

It also seems clear now that Russia will be exempted, de facto, from India’s asinine nuclear liability regime. The argument for the exemption is that laws cannot be applied retroactively – though such common sense has not always prevailed in India – and the Kudankulam agreement and the subsequent renegotiation were both concluded before the Civil Liability for Nuclear Damage Act. As analysts have pointed out, By reopening the Kudankulam deal to accommodate the CLNDA would provoke Russia into demanding renegotiation of reprocessing rights, the implementation of full scope safeguards, and showing a greater restraint in nuclear cooperation or technology transfer. Russia has already substantially raised the price of its reactors to allow for India’s convoluted workaround of its liability law.

Russia remains the only country that has committed to developing nuclear power plants in India despite the CLNDA albeit no new agreement has been concluded and the reactors presently under construction are still grandfathered into the 1988 accord. India’s early optimism in face of international concern for its liability law now seems hollow and self-deceptive. A good experience with Kudankulam is therefore important to retain India’s only foreign nuclear vendor.

This post appeared on FirstPost on June 02, 2017.

Debating Nuclear Supplier Liability

30 Fri Oct 2015

Posted by in India, Nuclear, South Asia

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There has been a lot of discussion about civil nuclear liability in India over the past four years. The new law promulgated by the government in 2010 as one of the requirements for the operationalisation of the Indo-US nuclear deal two years earlier has proven to be controversial and been the subject of much scrutiny. Nuclear vendors, both foreign and domestic, have been dismayed at the unorthodox stipulations of India’s Civil Liability for Nuclear Damage Act (CLNDA) and have generally stayed away from the country’s potentially lucrative market, scuttling what had promised to be a nuclear renaissance in 2008. The most offending clause – and there are a couple – is that in case of an accident, nuclear operators shall have recourse to legal measures against their suppliers. This goes against nearly six decades of internationally accepted practice of making the operator solely responsible for all liabilities.

Proponents of India’s new interpretation of nuclear liability have argued that the present insurance regime makes little sense and goes against the entire body of tort law. No other industrial insurance system allows suppliers immunity from legislation even in case of fault. Nuclear vendors have so far enjoyed a risk-free ride that serves as an indirect subsidy to the entire industry. Some of this support is, no doubt, built on the experience of the Union Carbide tragedy in Bhopal in 1984 that killed about 4,000 people and injured over 550,000 according to government estimates. The horrific accident, followed by bitter legal battles and what many see as insufficient compensation, has left many Indians wary of foreign corporations and their technology.

There are, of course, reasons for the unusual evolution of nuclear liability. They begin in 1954, when the United States decided that the private sector may be invited into the nuclear energy market. Until then, there were no civilian nuclear reactors and all military facilities would be the responsibility of the government under various environmental and tort laws. Initially, there was reluctance to enter into the market because of the substantial risk involved and the difficulty of calculating insurance premiums for such low-probability yet high-risk events. The Price-Anderson Nuclear Industries Indemnity Act (1957) simplified these issues by investing all liability in the nuclear operator, capping compensation limits, and including a no-fault condition. This was seen as an equitable distribution of risk and benefit between supplier, operator, and consumer.

Economic channeling of liability to the operator was efficient; if multiple vendors all had to take out insurance against a potential nuclear accident, not only would it raise the price of components but also lock down larger financial assets. Furthermore, smaller suppliers would hesitate to take on risk that could be orders of magnitude more than the value of their contract. Similarly, the public is guaranteed compensation without delay because of a no-fault liability – if legal disputes arose over who is liable for damages, victims may spend years waiting for the courts to decide on the case. The operator is also afforded some level of protection by capping damages. Thus, the benefits to each party in the nuclear concord are not insignificant. Though not a consideration when the Price-Anderson mechanism was formulated, it can additionally be argued today that nuclear power serves a public good by offering bountiful and reliable low-carbon energy.

Economic efficiency is not necessarily the prime consideration in policymaking but in the case of the nuclear industry, it might be the sensible yardstick. The notion is certainly not novel – governments frequently interfere in the market to prevent, break up, or regulate monopolies. For example, power distribution is a critical part of modern infrastructure; however, it would be foolish for companies to duplicate power lines simply to remain loyal to a strict textual reading of free market theory. Consequently, governments usually award a regulated monopoly to power distribution companies, thereby achieving economic efficiency and consumer protection as well as infrastructure development.

In India, of course, the traditional course of action has been for the government to have a powerful presence in business. However, recent legal amendments have opened the door to consider regulated monopolies in India. The Monopolies and Restrictive Trade Practices Act (1969) was replaced by the Competition Act (2002). In a significant departure from the former, the latter does not categorically disallow monopolies but concerns itself with merely the effect on the market in terms of consumer benefits and potential competitors. Clearly, Delhi has shown that it is not averse to economic efficiency if it is in the general interest of the public; the international nuclear liability norm is similarly another case of economic efficiency.

It is not that India’s decision makers do not understand economics. The real fear for politicians is the astronomical cost of a nuclear accident, however rare. The insurance pool established by the Price-Anderson Act has grown to approximately $14 billion today. This is by far the richest insurance pool available for awarding damages arising from a nuclear accident. Yet even the Price-Anderson nuclear insurance pool pales before some of the estimated costs of a nuclear cleanup. Fukushima, for example, where not a single death was caused by radiation, is still predicted to cost Japanese taxpayers around $100 billion. Nuclear suppliers have deeper pockets than nuclear operators, particularly in India where the only legal operator is an autonomous government agency. Leaning on the vendor, as the Indian legislation does, will help defray the cost that the state as the guarantor of last resort will have to ultimately pay.

This strategy has not borne fruit – all international vendors have shunned the Indian market despite its potential. The only exception, the Russian state-owned Rosatom, has renegotiated its contract and drastically hiked the price of their reactors. While the cost of the first two reactors at Kudankulam was Rs. 17,270 crores, the third and fourth reactors will cost India Rs. 39,747 crores – more than double the original price when economies of scale should have actually lowered the price. Moreover, it is unlikely that suppliers will budge from their positions for the global precedent that would set. The cost of this impasse hurts India not just in the price per reactor but also environmentally and economically. The public interest would be better served were Delhi to accede to the standard international interpretation of nuclear liability.

This is not to delegitimise India’s fears of the cost of an improbable nuclear mishap. Rather, the solution must be found elsewhere. One possibility is to allow private sector entry into the nuclear power industry, allowing some of the costs of a nuclear accident to be borne by industry. In congruence with privatisation, a nuclear insurance pool may be set up that all operators would contribute to depending upon the number of reactors they own. A greater amount of reactors will create a bigger pool and if India were to modestly aim at even half of its electricity to be derived from nuclear power, substantial funds could be accumulated. In addition, suppliers can be called upon to contribute to the pool as well in the form of a small annual licensing fee per reactor. As long as they are not exposed to liability, most suppliers should accept this modest proposal.

An unpopular but required measure is to also assess how many of the safety precautions are psychological and how many are truly needed. To take just one example, evacuating a zone 50 kms in radius always sounds better than clearing out an area 20 kms in radius. However, how much is necessary is a decision scientists can make better than others; nuclear power plants already come with exclusion zones and evacuation beyond that should be dictated only by necessity.

If Delhi truly wanted to worry about liability, there are other aspects it can look at. For instance, its neighbours have shown increasing interest in nuclear power; Pakistan is acquiring reactors from China, Bangladesh has inked an agreement with Russia, and Sri Lanka is considering joining the nuclear club as well. If an accident were to occur at any of these sites, the trans-boundary implications could be severe. None of these states are party to any of the international liability conventions yet and responsibility for any accident will fall on each state for its own domain. Expanding Indian’s national nuclear pool to these countries is one solution but the sheer number of reactors India will have means that the Indian share in any compensation would be disproportionate. Nonetheless, this is an important conversation South Asia needs to have.

India’s stubbornness on nuclear liability seems to have the purpose of punishing foreign vendors rather than achieving a pragmatic system. For all its interest in holding suppliers liable for damages, one wonders why Delhi has not asked coal and oil companies to compensate the over 100,000 deaths per annum and millions afflicted by respiratory illnesses. India is wrong on supplier liability and it takes political courage to walk back a mistake. But that is what this government must do.

This post appeared on FirstPost on November 12, 2015.

Nuclear in the Year of Modi

14 Thu May 2015

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It has been a year now since Narendra Modi took office as prime minister of India and by all accounts, it has been a good year. In many ways, Modi’s victory is reminiscent of Barack Obama’s rise to the presidency of the United States in 2008 – after eight years of what many saw as a misguided war in the Middle East and Central Asia, a significant number of Americans wanted change. Similarly, after ten years of anaemic Congress rule, Modi represented the hopes – perhaps unrealistically high – of millions of Indians.

For a candidate who had spoken at length about solar power during the election campaign, it was surprising to see Modi talk up nuclear energy once in office. In July 2014, Modi visited the Bhabha Atomic Research Centre and was full of praise for India’s nuclear community. Declaring that nuclear power would be an essential part of India’s energy security, he assured the Department of Atomic Energy of his full support in the implementation of their expansion plans. To be sure, it will take a brave prime minister to belittle the nuclear programme – India takes much pride in its high-tech endeavours such as spacefaring and nuclear technology, especially given the prejudicial international environment in which it was developed. Yet such pride has not necessarily translated into support in the past – some projects are decades overdue and there was never a concerted push towards nuclear power in India.

A few important developments in the nuclear arena have taken place during Modi’s first year in office, some of them entirely of his making and others not so much. For example, India signed agreements with Australia and Canada for the supply of uranium for its safeguarded reactors. These negotiations had been ongoing since the previous regime and would have been concluded no matter who resided at Race Course Road. Similarly, work on Kudankulam, Kalpakkam, and general nuclear research would have likely continued under bureaucratic inertia.

Modi’s leadership has expedited other nuclear developments, principally the civil liability for nuclear suppliers. However clumsy the solution to the train wreck that is India’s nuclear civil liability law may be, a suppliers’ insurance pool removed a major obstacle before nuclear vendors – foreign and domestic – investing in the Indian nuclear market. Another project that saw some movement in the past year due to Modi’s involvement was Jaitapur. The Indian prime minister raised the issue of Jaitapur with Areva during his visit to Paris in April 2015 and saw the French nuclear concern sign a pre-engineering agreement (PEA) with Larsen & Toubro. The agreement is significant, perhaps more so than one realises, because it involves the transfer of forging technology to L&T to enable it to manufacture reactor vessels for the French EPR reactor in India. Not only will this obviate the need for European and American nuclear vendors to depend upon Japanese companies to provide crucial reactor components, but it will also allow India to support its indigenous nuclear industry and eventually enter the export market.

As remarkable as these two achievements are, the shortcomings of Modi Sarkar are equally baffling. Despite a close relationship with Shinzo Abe since his days as the chief minister of Gujarat, Modi was not able to nudge an Indo-Japanese civil nuclear cooperation agreement closer to the finish line. This was a disappointing setback as both Tokyo and Delhi try to surreptitiously bolster defence and strategic cooperation. Similarly, India failed to capitalise on the Russian offer made during Vladimir Putin’s visit in December 2014 to build 20 reactors in the country. Part of the problem was perhaps that the Indian nuclear establishment was not ready to absorb such an investment and had no sites or plans ready to deploy so many reactors. Furthermore, domestic opposition to nuclear power would make quick movement on new sites difficult.

As always, there have been rumblings about Hitachi and Toshiba setting up nuclear power complexes at Srikakulam and Mithi Virdi but there has been little movement on the ground despite the persistence of such rumours for almost a decade. Similarly, Rosatom’s project at Haripur has been stalled for years without any conclusion in sight. The foundation stone to Gorakhpur, an indigenous nuclear project, was laid by then prime minister Manmohan Singh in January 2014 but the project had been planned since 1984 and there is little news of it since the foundation ceremony either. Such chronic delays need to be addressed if India is to ever pursue nuclear power seriously – in an era where financing is the largest component of the cost of a nuclear power plant, delays can mean the death knell for nuclear energy.

Despite some good progress on the nuclear front during Modi’s first year as prime minister, some fundamental reforms of huge import remain to be accomplished. One is in the arena of transparency. Pace the claims by the nuclear conclave, reliable and consistent information about the nuclear programme is elusive. The introduction of the Right To Information Act has shifted the onus of uncovering data onto activists rather than keep it on the department in question. Furthermore, national security or the public interest is used as an excuse to cloak even the quotidian operations of the Department of Atomic Energy. For example, in November 2014, the Minister of State for Department of Atomic Energy, Jitendra Singh, informed the Lok Sabha that “it is not in the public interest to disclose the quantity of production of uranium” in response to a question on the average annual production from uranium mines and the quality of the ore!

Another reform that should be considered over the next four years is to transfer the control over nuclear energy to the Ministry of Power. This would allow the minister responsible to take a comprehensive view of the power requirements of the country and the options available before deciding on India’s energy mix. Though secrecy may have been important to India’s nuclear programme in its dual-use incarnation, the separation of civilian and military nuclear facilities as stipulated by the Indo-US nuclear deal has obviated the need for such levels of confidentiality. Defence reactors would obviously be retained by the PMO or perhaps transferred to the Ministry of Defence, but those facilities involved in non-military activities can be put under the purview of the minister of power.

What Modi and the Indian nuclear programme sorely needs is a visionary. When Homi Bhabha envisioned a three-stage nuclear programme for India in November 1954, there was not a single commercially operating nuclear reactor in the world; India did not yet have an operational reactor of any type. The world’s first commercial power reactor went critical in December 1957 in Shippingport, United States, and India’s first reactor, Apsara, came online in August 1956 for research purposes; India’s first commercial reactor, Tarapur Unit I, went critical only in October 1969. Bhabha’s ability to think decades ahead was a boon for India’s nuclear programme but it came at a point when the commercial uranium reactors were still a theory and thorium reactors were a distant dream. Bhabha himself was a competent scientist but by no means technically brilliant. However, his audacious dream transformed India .

It is difficult to predict what a visionary might advocate but a few things that might receive consideration are new technologies such as Molten Salt Reactors, Integral Fast Reactors, and thorium reactors such as the Advanced Heavy Water Reactor. A second consideration would be a ramp up in the number of reactors by an order of magnitude – if we want clean air, plentiful energy, and growth simultaneously, perhaps it is time someone talked about a thousand reactors over the next half century rather than twenty, fifty, or even a hundred. Modi has shown himself to be an able administrator so far but now he needs a domain expert with chutzpah. As the good Book teaches us, where there is no vision, the people perish (Míshlê 29:18).

This post appeared on Daily News & Analysis on May 18, 2015.