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Nuclear Insurance Pool Dilutes Risk for Indian, US Suppliers

Published: 09th February 2015 06:00 AM  |   Last Updated: 09th February 2015 03:46 AM   |  A+A-

NEW DELHI: The government on Sunday made it clear that India’s liability law will not be amended as it released the understanding reached with the US under which foreign suppliers of equipment for nuclear reactors cannot be sued by the victims in case of a mishap.

The External Affairs Ministry released information in the form of 19 Frequently Asked Questions (FAQs) and acknowledged that as a “matter of policy”, Nuclear Power Corporation India Limited (NPCIL) “would insist that the nuclear supply contracts contain provisions that provide for a right of recourse consistent with rule 24 of Civil Liability for Nuclear Damage (CLND) Act”.

The risk to the suppliers in such a scenario is mitigated by the creation of the ‘India Nuclear Insurance Pool’, described as a risk transfer mechanism. “It would enable the suppliers to seek insurance to cover the risk of invocation of recourse against them,” said the FAQs. The definition of a ‘supplier’ was also spelled out, which could apply to Indian or US firms, and even NPCIL.

Further, the FAQs made it clear that the suppliers are not covered under Section 46 of the CLND Act, which channels liability exclusively only to operators and that no civil suit related to nuclear damage can be brought under other acts.

The MEA’s paper argued that section 46 cannot be applied to suppliers as Parliament had explicitly refused to add the term through the rejection of two amendments seeking the same, at the time of the vote of the CLND Bill. “It is a well-settled principle of law that every statute is to be interpreted in accordance with the intention of the legislature or maker of the statute,” asserted the FAQs, referring to two judgments within last 10 years.

While the executive cannot predict how the court will react, the memorandum and FAQs cite the legal precedence through case laws and legislative history.

Incidentally, the FAQs also make clear that while the operator can be sued under laws as per section 46, it would be for “matters other than the civil liability for nuclear damage”.

Besides, section 46 does not allow victims to move foreign courts against either the operator or supplier, as it will be against the “basic intent of the law to provide a domestic legal framework for victims of nuclear damage to seek compensation”.

“The fact that a specific amendment to introduce the jurisdiction of foreign courts was negated during the adoption of the CLND Bill buttresses this interpretation,” said the FAQ.

Also, operators and suppliers cannot be asked to pay more compensation, beyond the cap of `1,500 crore, if their contracts are drawn up on the basis of CLND Act.

If the liability exceeds `1,500 crore, then the government can “bridge the gap” up to an amount of `1,110 crore. “Beyond `2,610 crore, India will be able to access international funds under the CSC once it is a party to that Convention,” explained the document.

Regarding the creation of the nuclear insurance pool, while five State insurance companies will contribute `750 crore, the rest will be given by the government “on tapering basis”.

The pool mechanism will allow for both operators and suppliers to take out policies. “Operators and suppliers instead of seeing each other as litigating adversaries, will see each other as partners managing a risk together”, which the document said was “as important for Indian suppliers as it is for US or other suppliers”.

To deal with the criticism that this method would shift the financial risk onto the government and therefore taxpayers, the FAQs claimed that “there is no extra burden”. The NPCIL has already taken out a bank guarantee of `1,500 crore. Now, it will take out a policy of the same amount and pay the same amount of premium.

In the end, the government noted that it was up to the companies to decide if this was commercially viable, even though it had been part of some of the meetings of the Contact Group.

“It will be now up to the companies to follow up with their own negotiations and come up with viable offers and contracts consistent with our law and practice so that reactors built with international collaboration can start contributing to strengthening India’s energy security and clean energy options,” it added.

Box 1

The FAQs also mentioned that the text of the administrative arrangement to implement the bilateral civil nuclear agreement has been “finalised”, but the details were not included in the explanation released by the MEA. Administrative arrangement refers to flagging and tracking of nuclear fuel and equipment. The US had wanted an additional layer of tracking during the negotiations. India said that the understanding reached is based on current practice and international obligations.

Box 2

The government has again clarified that neither the Civil Liability for Nuclear Damage Act of 2010 and the CLND 2011 rules will be amended. “There is no proposal to amend the Act or the Rules,” asserted the MEA’s FAQs.

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