Balance of responsibility

Tyson R Smith*

Published by, The Indian Express , 28 July 2014**

In 2008, India and the US reached an agreement on nuclear cooperation that was hailed in many quarters — by nuclear suppliers and vendors in the US, India and across the world — as an opportunity to facilitate the rapid expansion of India’s civilian nuclear programme. India envisaged expanding its civilian nuclear programme from its current capacity of 4.8 GW to 30 GW by 2030. To fully engage with international nuclear suppliers, however, India needed to harmonise certain laws, particularly those addressing civil nuclear liability in the case of an accident, with international norms.

From a policy perspective, sophisticated parties may agree to cap liability or provide a right of recourse under a contract. (Source: PTI photo)

Kudankulam NPP (PTI)

Internationally, the fundamental nuclear liability principles include: strict liability, relieving victims of the need to prove fault or negligence; exclusive liability, ensuring that the operator is the only entity liable to compensating for damage (even if caused by a supplier or vendor); financial protection covering the operator’s liability, ensuring that funds are available to compensate victims; limitation of operator liability in time and amount, enabling the operator to set up a cost-effective mechanism to cover the liability amount; a single court for victims’ claims, providing consistent treatment in the recognition and execution of judgments.

India’s nuclear liability law, enacted in 2010, contains elements that address each of the above principles.  However, Section 17(b) grants the operator the right to seek recourse from suppliers and vendors (only after the operator compensates victims) if the accident was the result of a patent or latent defect in equipment or substandard services. This provision is fundamentally different from those in nearly all other jurisdictions. It is a significant difference, at least from the perspective of the international nuclear industry.

From a policy perspective, sophisticated parties may agree to cap liability or provide a right of recourse under a contract. This is a perfectly acceptable mechanism when the only damage is economic harm to one or both of the parties to the contract (such as damage to a reactor in the event of an accident). In that case, there is no need for a legislation. The situation is different when the victim of an accidental release is not in a contractual relationship with either the vendor or the operator but is a member of the public. In that case, the transaction costs are prohibitive — the vendor and operator cannot negotiate with each potentially affected party separately. There is then a need for legislative action (for example, liability caps, financial protection, a single court) to reduce transaction costs to an acceptable level. The legislation should create proper incentives to ensure that the entity with the greatest ability to influence accident risk adopts an optimal activity level. For nuclear power, this full internalisation of responsibility occurs when the operator is exposed to the activity’s full costs. This is because the operator is responsible for selecting the supplier/ vendor, qualifying equipment, overseeing construction and the installation of equipment, choosing maintenance priorities, monitoring performance, repairing equipment and operating the plant.  In short, it is the operator who is ultimately responsible for the safe operation of a nuclear power plant.

In the context of India’s nuclear liability law, the right to seek recourse from suppliers and vendors has two significant implications. First, it increases the costs of nuclear projects. Second, it alters the operator’s incentives by shifting some responsibility for safety to vendors. The first implication is fundamentally a matter of price. Because India’s liability regime is different from the international regime, it creates more uncertainty (or risk) for the vendor that must be accommodated in the contract price. And, when choosing between a half-century-old approach used internationally and an untested liability provision, a rational company will demand a significant price increase to accommodate the unique provision. This dynamic, which is far from surprising, is a major reason why negotiations remain at an impasse.

Nuclear vendors are also concerned that the right of recourse fundamentally alters the balance of responsibility between the operator and the vendor. Not only should a regulator and the public be able to demand accountability from a single entity (the operator), but the operator must also take responsibility for the actions of its suppliers and vendors. The operator should, and must, uncover latent or patent defects before equipment is put into service. Anything less would be an abdication of its responsibility to protect public safety. Vendors, therefore, are justified in being concerned that a right to recourse creates the wrong incentive, by giving an operator a mechanism for shifting responsibility from its role in an accident to the vendor. This concern is probably compounded by the fact that the sole operator in India, the Nuclear Power Corporation of India Limited, is government-owned and therefore would have the bully pulpit and motivation to blame a foreign vendor in the unlikely event of an accident.

At a recent Nuclear Law Association meeting in New Delhi, a number of participants raised questions on the effects of the liability law on the expansion of nuclear energy in India and on public acceptance of nuclear power.  Some hailed the law as a paradigm shift in nuclear liability, ensuring that vendors have a stake in the safe operation of plants. But the benefits of vendors having a stake in safe operation are overstated. The international nuclear supply chain is transparent. Reputations matter. The loss of business associated with the discovery of a defect could cripple a company just as quickly as the financial effects of the right of recourse. And the right of recourse does not result in additional compensation for victims, so there is no direct “public” benefit. More importantly, providing a means for the operator to shift responsibility for an accident ultimately undermines safety by not exposing the operator to the full cost of any failure to safely design, construct, operate and maintain a plant. This increases the risk, even if only in a small way, that operators will accept items of dubious quality and provenance, rely more heavily on the assurances of contractors and vendors without independent verification and treat the safety of systems, structures and components as someone else’s responsibility.

All of this does not mean that a change to India’s liability law is necessary, but it does suggest the contours of any possible solution. One solution, of course, would be to change the law to fully align with international principles. But it might also include a process for endorsing the absence of defects or confirming acceptable service. Or, though less ideal, the operator could purchase an insurance policy that would indemnify vendors in the event of a claim under Section 17(b). The last two options ensure that the operator is exposed to the full costs of generating nuclear power, though in a somewhat roundabout way.

Ultimately, the tangible benefits of nuclear power (efficient baseload power, climate, economic development) outweigh its costs, including the low probability of accidents. But broad nuclear development will only take place when there is a stable liability regime that all parties find acceptable. That will not happen until the economic and regulatory framework for nuclear power creates complementary and efficient incentives.

*The writer is partner, Winston & Strawn LLP, and was an attorney for the US Nuclear Regulatory Commission

**http://indianexpress.com/article/opinion/columns/balance-of-responsibility/99/

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Agenda for nuclear diplomacy

Rakesh Sood*

Published in The Hindu, 27 June 2014**

On June 22, the Narendra Modi government announced that the International Atomic Energy Agency (IAEA) Additional Protocol had been ratified. It is a welcome step marking the new government’s foray into nuclear diplomacy. However, by itself, it will not pave the way to the successful conclusion of negotiations with Westinghouse or GE or, for that matter, even AREVA. For that, more initiatives need to be taken, particularly if progress on the nuclear issue is to be registered during the Prime Minister’s visit to Washington.

India signed the IAEA Additional Protocol on March 15, 2009, over five years ago. It was one of the boxes to be ticked for implementing the 2008 India-U.S. Civil Nuclear Cooperation Agreement. But it was not a difficult obligation to fulfil because the Additional Protocol is customised for nuclear weapon states and this aspect had been successfully worked out by the Indian negotiators. It was left pending ratification because there were other, more difficult and more critical issues that needed to be tackled first, for which the political will could not be mustered in the last years of the United Progressive Alliance (UPA)-II government.

Addressing proliferation

To understand the Additional Protocol, it is useful to look at its genesis. With the end of the Cold War, the prospects of a nuclear exchange between the two superpowers receded and the proliferation of nuclear weapons became the new threat that needed to be addressed at a global level. In 1993, the IAEA began to consider how it could play a role in this and began a deliberative two-year exercise, described as 93+2.

The IAEA was already implementing full-scope-safeguards in countries that were party to the Nuclear Non-Proliferation Treaty (NPT) as non-nuclear weapon states. This meant that all nuclear activity in these countries was monitored to ensure that it was intended only for peaceful purposes. For the five nuclear weapon states recognised by the NPT (the United States, Russia, the United Kingdom, France and China), full-scope-safeguards were not applicable as these countries had a nuclear weapon fuel cycle that could not be subjected to international accounting and inspection by the IAEA. These five countries, therefore, worked out an understanding with the IAEA and accordingly, “voluntarily” placed some of their civilian facilities under a much looser IAEA safeguards agreement, more as a political gesture to demonstrate their good faith and provide credibility to the IAEA, which would otherwise be accused of only policing the nuclear have-nots.

The 93+2 exercise led, in 1997, to the Model Additional Protocol. The logic behind it was different — while full-scope-safeguards provided assurance that all nuclear materials were fully accounted for in exclusively peaceful activities, the Additional Protocol was intended to reassure that there was no clandestine nuclear activity being undertaken. Its purpose was to strengthen and expand the existing safeguards regime applicable to the non-nuclear weapon states. Remote monitoring and analysis, environmental sampling to detect traces of radioactivity, and inspections without notice, were introduced. In addition, the scope of declaratory activities relating to the nuclear fuel cycle was expanded, thresholds to trigger inspections were lowered, and imports (and exports) of dual-use items came under scrutiny. The prime catalysts for this were nuclear developments in Iran, North Korea and Libya, most of them easily traceable to Dr. A.Q. Khan’s freewheeling nuclear Wal-Mart. Once again, the five nuclear weapon states excluded themselves from the Model Additional Protocol citing national security considerations, but volunteered to conclude an Additional Protocol based on what could be shared with the IAEA.

Recognising Indian ambition

During the 1990s, with the tightening of export control regimes and the expansion of control lists to cover dual-use items and technologies, India’s access to these sectors was severely restricted. Therefore, after the 1998 nuclear tests and the declaration that India now possessed a nuclear arsenal, it was important for the Vajpayee government to demonstrate India’s impeccable non-proliferation record and as a responsible nuclear-weapon-state, seek its place in legitimate civilian nuclear commercial and technology exchanges. In the dialogues undertaken with major powers after 1998, France and later on, the U.S., were receptive to this ambition.

Prime Minister Manmohan Singh took forward the nuclear diplomacy of the Vajpayee government. Looking beyond the Next Steps in Strategic Partnership (NSSP), which was being implemented in phases in 2004, the breakthrough came in July 2005 during Dr. Singh’s visit to Washington, when it was announced that “the U.S. would work to achieve full civil nuclear energy cooperation with India”, “seek agreement from Congress to adjust U.S. laws and policies,” and further, “work with friends and allies to adjust international regimes to enable full civil nuclear energy cooperation and trade with India.” In turn, India agreed to “take on the same responsibilities and practices and acquire the same benefits and advantages as other leading countries with advanced nuclear technology, such as the United States.” These responsibilities included “signing an Additional Protocol with IAEA for civilian facilities.”

Not being party to the NPT, India was not subject to full-scope-safeguards. However, nuclear reactors set up with international cooperation (e.g. Tarapur 1&2, Rajasthan 1&2, and more recently, Kudankulam 1&2) were subject to the IAEA’s facility-specific safeguards. As per the 2005 undertaking, it was tacitly understood that as a nuclear weapon state, India would keep some of its facilities out of safeguards for national security reasons and there would, therefore, be significant differences between the Model Additional Protocol (as adopted by states under full-scope-safeguards) and the customised Additional Protocol that would apply in the case of India. In fact, the Indian Additional Protocol does not contain most of the Model Additional Protocol’s provisions and basically requires that India provide information to the IAEA regarding its nuclear-related exports. So much so, that even though India only signed the Additional Protocol on March 15, 2009, President Bush had certified to the U.S. Congress in September 2008 that India and the IAEA were making substantial progress in negotiating the Additional Protocol, thus clearing the way for the India-U.S. Agreement to be signed on October 10, 2008.

Quantifying liability

Ratifying the Additional Protocol was the low-hanging fruit but significantly, the decision indicates that nuclear diplomacy will remain a priority for the Modi government. The focus should therefore now shift to resolving the ambiguities of the 2010 Nuclear Liability Law. Without this exercise, India can only import nuclear fuel for the existing power plants; it will not be able to undertake the much-needed expansion of the nuclear power sector. It is not only the foreign suppliers who would like clarity on this issue; Indian vendors are equally concerned about its ambiguities.

We know how national and international nuclear liability laws have evolved and why liability was channelled exclusively to the operator. In the 1950s, only the U.S. had a nuclear industry and the U.S. private sector needed this protection in order to establish itself at a global level. Today, the situation is different and there is a growing feeling that this exclusive channelling is no longer helpful. The Indian law of 2010, which brings in the concept of supplier liability, may not be consistent with existing practice, but it is certainly much more in consonance with the spirit of the times. The idea of some measure of supplier liability is an idea that can no longer be bypassed. However, what the Modi government needs to ensure is that supplier liability does not become “infinite” or “open-ended.” What is necessary is a genuine effort to address the concerns of the suppliers’ community so that their liability can be quantified in a manner that does not raise costs to prohibitive levels.

The NSG waiver has enabled India to import nuclear fuel from multiple sources and improve capacity utilisation in nuclear power plants, but the ambiguities of the Nuclear Liability Law created a roadblock that UPA-II could not overcome. Dialogue with the U.S. lost momentum as did the quest for India’s membership of the Nuclear Suppliers Group. Mr. Modi is well placed, both at home and abroad, to impart a new momentum to the diplomatic process, thereby ensuring India’s long-term energy security interests, giving a push to India-U.S. relations, and getting India to its rightful place at the nuclear high table.

*(Rakesh Sood, a former Ambassador, was the Prime Minister’s Special Envoy for Disarmament and Non-Proliferation from September 2013 to May 2014.)

**http://www.thehindu.com/opinion/lead/agenda-for-nuclear-diplomacy/article6152407.ece

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Nuclear Liability: A Key Component of the Public Policy Decision to Deploy Nuclear Energy in Southeast Asia

 

Mohit Abraham*

Published by the American Academy of Arts and Sciences and is available for download  https://www.amacad.org/content/publications/publication.aspx?d=1499

Prologue

This paper provides an analysis of nuclear liability, with a focus on the countries of Southeast Asia. The unfortunate events at Fukushima Daiichi in 2011 have raised serious issues for the world community and, in particular, nuclear energy aspirants with regard to the scope and adequacy of nuclear liability coverage in the event of a nuclear accident. For the public in countries that are still discussing the efficacy of deploying nuclear power, we believe that the nuclear liability regime needs to be robust enough to fairly compensate all parties if and when a nuclear accident occurs. This paper tackles this complex issue by focusing on the most significant issues, including:

1. The tension among nuclear suppliers, nuclear operators, and the host and neighboring states in sharing the cost of liability.

2. The continual debate regarding the sufficiency and availability of funds to meet potential compensation demands in case of an accident. This uncertainty, we believe, constitutes a hurdle for public acceptance of nuclear energy, especially in developing countries; we believe that the insurance caps need to be raised significantly.

3. Altering the balance in this area of nuclear liability law jurisprudence by identifying the nuclear supplier as the responsible party in case of an accident. If liability laws comparable to the Indian Civil Liability for Nuclear Damages Act are adopted in the future by additional countries, particularly those in Southeast Asia, this could be a game changer in assessing the economic viability of nuclear energy. (The principle of excluding supplier liability in favor of channeling all liability to the operator of a nuclear power plant has been the operative standard in existing statutes and conventions.)

4. Reliance by a growing number of nuclear aspirants on foreign technology and expertise, including safety oversight. We believe that this will create new challenges regarding legal jurisdiction as to who is responsible for compensation and the extent of liability that could be imposed on these foreign entities and individuals.

5. Unavailability of a universal framework regarding the liability conventions across all states. The principles laid down by the Paris and Vienna Conventions form the bedrock of current international nuclear liability law. However, there is a lack of harmonization between these two agreements. (Many states, including legal officials from the United States, have asserted that the Convention on Supplementary Compensation for Nuclear Damage [creating a viable risk pool based on proportional assessments imposed on nuclear plant operators in states that have ratified the CSC] could serve as an umbrella agreement. According to the IAEA, “The OECD- sponsored Paris Convention and Brussels Convention are popular in Western Europe while the IAEA- sponsored Vienna Convention is popular in Eastern Europe and elsewhere around the world. Some countries have signed a Joint Protocol to link those two treaties. The Convention on Supplementary Compensation for Nuclear Damage (CSC) was designed to become a global regime and is open to countries without nuclear power plants”[1].

This paper addresses the following key questions:

1. What impact have the unfortunate events at Fukushima had on the views of regional policy-makers and stakeholders regarding changes to nuclear liability and nuclear compensatory standards?

2. What is the standard that policy-makers and scholars, planning the deployment of new nuclear energy, should use as a guidepost as they consider nuclear liability legislation in their respective states? Obvious questions that arise include whether the principles laid down by the Paris and Vienna Conventions should be used to establish regional or country- specific standards, and whether regional agreement on standards should be preferred over country-specific standards. The current U.S. policy is clear on these questions: The United States prefers adoption by new countries of the CSC rather than implementation of region-based standards.

3. Will the vendors in Russia, Japan, China, and the Republic of Korea, as substantive future nuclear suppliers, be influential in setting the trend(s) in the nuclear liability regime?

4. What can countries considering deployment of nuclear energy learn from the recent experiences in India? Statements made by Russian officials seem to indicate that if the Russian government were to accept India’s new liability law, there would be an increase in tender price for its new VVER plants in India, increasing the burden on Indian consumers. Does this set a precedent, or are alternatives, based on variants of India’s nuclear liability law, preferable?

5. Should specific incentives to encourage passively safe designs be considered when the technical aspects of establishing a robust and sustainable liability regime are considered?

6. What roles should international bodies such as the International Atomic Energy Agency, the World Nuclear Association, and others play in encouraging a uniform and strict liability regime?

7. Can other substantive non-nuclear models (such as the International Oil Pollution Compensation Fund) that contain provisions for risk-sharing among private and public entities be useful in assessing the size of the financial risk pool to pay for compensation in the event of an accident?

Stephen M. Goldberg
former Senior Consultant to the American Academy’s Global Nuclear Future Initiative

Robert Rosner
Senior Advisor to the American Academy’s
Global Nuclear Future Initiative;
William E. Wrather Distinguished Service Professor in the Departments of Astronomy and Astrophysics and Physics, University of Chicago

 

[1] “Initiative for Global Liability,” World Nuclear News, August 30, 2013, http://www.world-nuclear-news.org/NP_Initiative_for_global_liability_3008131.html.

*Mohit Abraham is Partner at PXV Law Partners and Advocate-on-Record of the Supreme Court of India. He is on the Governing Board of the Nuclear Law Association of India and also chairs its working group on nuclear liability

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Nuclear technology transfer – Intellectual property issues

By, Vaibhav Saxena*

India’s nuclear power expansion programme banks heavily on imported technologies which have developed at high cost and risk over a long period. Not unreasonably therefore, the nuclear technology developers would expect compensation for transfer of their technologies. When the technology is transferred in whatever form (sale, JVs, localiastion or full ownership transfer) the technology provider will want to ensure that its competitive advantage, as the developer of the technology is protected. If current trends in the nuclear industry are any indication, host countries the world over are placing an increasing priority on both localisation and technology transfer.

Intellectual property (IP) has an international dimension, and technology providers want to make sure that the host country acknowledges and enforces the technology provider’s IP rights. They genuinely want to have confidence that the other party to the transaction will honour and respect their IP rights including the licences granted in respect of the technology. A patent is granted only to the inventor or the owner of the invention and the principle behind patent protection is that in return for disclosing his invention, the inventor is given limited exclusivity for it and thus provided an exclusive right to make, use and sell the invention within the jurisdiction of that patent.  Nuclear capabilities and activities have created a shrinking world necessitating wide-ranging international co-operation. As a backward step though the World Trade Organisation (WTO) – Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement gives freedom to each country to frame its patent and other IP related laws and confirms that the patent laws are ‘territorial’. Patent laws are therefore, national in scope and eventually IP rights may need to be enforced through the national courts.

According to sub-section (1) of section 20 of the Atomic Energy Act, 1962, no patents shall be granted for inventions which in the opinion of the Central Government are useful for or relate to the production, control, use or disposal of atomic energy or the prospecting, mining, extraction, production, physical and chemical treatment, fabrication, enrichment, canning or use of any prescribed substance or radioactive substance or the ensuring of safety in atomic energy operations. As a corollary to this, section 4 of the Patents Act, 1970 provides that “No patent shall be granted in respect of an invention relating to atomic energy falling within sub-section (1) of section 20 of the Atomic Energy Act, 1962”.

As a consequence,  inventions useful for or relating to the production, control, use or disposal of atomic energy or the prospecting, mining, extraction, production, physical and chemical treatment, fabrication, enrichment, canning or use of any prescribed substance or radioactive substance or the ensuring of safety in atomic energy operations can not be patented in India and in the absence of patent protection their inventors have to protect their rights through a confidentiality clause in the contract or a separate confidentiality agreement so that in case of breach, the supplier can have a right of recompense. Such remedy however, will be enforceable against the buyer and not against the government or the regulatory authority to whom information of proprietary nature is communicated by the buyer in compliance with the legal and regulatory requirements as in the absence of the privity of contract the government and regulatory authorities can not be held liable for the breach of confidentiality. Obviously intellectual property rights are available in rem while contracts normally bind the parties concerned. Yet it can be argued that the buyer may still be liable if it failed to inform the government or the regulatory authority of the proprietary nature of third party intellectual property related information submitted to them in compliance with the applicable local laws.

Though carefully drafted confidentiality agreements have a significant role in protecting intellectual property, such an agreement can, at best secure compensation for breach of contract between two parties and can hardly be a substitute for clearly delineated express laws which have binding force and are enforceable through deterrent penal provisions that can introduce order in the IP regime. Therefore, true international cooperation for protection of IP is absolutely essential which can only prosper in an atmosphere of mutual trust and equality by digging at currently prevalent fragmentary ‘territorial’ approach reflected in the WTO-TRIPS international IPR regime and the out-fashioned national laws like sub-section (1) of section 20 of the Atomic Energy Act, 1962 and Section 4 of the Patents Act, 1970. This is of great relevance in the context of highly-specialised technological endeavours such as the nuclear sector and deserves treatment of a forewarning that the host government might find it difficult to attract project participants and to achieve the desired levels of localisation and technology transfer to the extent to which the host country shows lack of respect for IP rights. New approaches to IP protection are therefore, the need of the hour.

* Advocate and a Member of the Nuclear Law Association, India and the International Nuclear Law Association. He  recently interned at the Nuclear and Treaty Law Section, Office of Legal Affairs, International Atomic Energy Agency (IAEA) at Vienna. Author is alone responsible for the contents of the write-up.
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Call for Papers: Third Annual Meeting of the Nuclear Law Association

“Nuclear Energy and Indian Society: Public Engagement, Risk Assessment and Legal Frameworks”

01 March 2014, India Habitat Centre, New Delhi

About

The Nuclear Law Association (NLA) is organising its 3rd Annual Meeting with the specific aim to deliberate on public engagement, consultation and acceptance of nuclear energy projects. The meeting further aims to seek a better understanding of the necessary legal framework for a safe nuclear energy program in India.

Call for Papers

Papers are invited from lawyers, academics, social scientists and the student community. A critical and comparative analysis of process, policy and law is encouraged. The papers must be submitted under any of the identified themes.

The following should be strictly adhered to and submitted in a single Word document:

  • An abstract of not more than 150 words.
  • The abstract should contain the research issues and a description of how the author proposes to address the issues. All in a paragraph format
  • A complete profile of the author. (2-3 lines)

 Dates

  • Abstract deadline: 1 January 2014
  • Selection notification: 15 January 2014

Publication Partner

A special issue of Journal of Risk Research, Taylor and Francis will publish the invited and selected papers.  A total of 5 papers will be selected for publication. Two out of these five papers will also be offered a presentation slot at the third annual meeting of NLA.

Themes

  • Public engagement, consultation and acceptance
  • Nuclear energy safety and public discourse
  • Case studies from India on public engagement (comparative studies can be included but must include an India component)
  • Land acquisition and EIA in India
  • Safety regulations and its enforcement
  • Nuclear regulatory institutions
  • Siting, consent and project execution
  • Nuclear liability and compensation

Contact

Abstract submission and queries related to paper

Dr R Rajesh Babu, Associate Professor, Indian Institute of Management, Kolkata

Email: rajeshbabu@iimcal.ac.in

For general enquires and participation

Els Reynaers Kini, Partner, M V Kini & Co, and, General Secretary, Nuclear Law Association
Email: secretary@nlain.org

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