INDO-US NUCLEAR DEAL AFTER OBAMA VISIT

Introduction:-

• Nuclear power is the fourth-largest source of electricity in India after thermal, hydroelectric and renewable sources of electricity.As of 2013, India has 21 nuclear reactors in operation in 7 nuclear power plants, having an installed capacity of 5780 MW and producing a total of 30,292.91 GWh of electricity while seven other reactors are under construction and are expected to generate an additional 6,100 MW.

• India did not sign the Non-Proliferation Treaty (NPT) and exploded its first nuclear weapon in 1974. Consequently, the United States stopped supply of nuclear materials to India in 1978. For thirty years, there was no cooperation between the two countries on uses of atomic energy. Subsequently, India developed its indigenous nuclear industry.

• The US signed a historic deal with India in 2008 to resume supply of nuclear technology and materials. The treaty was inoperative for more than six years for two reasons: (i) insistence of Washington on tracking of nuclear materials and (ii) the supplier's liability in the event of a nuclear accident.

• The recent nuclear deal between India and the US removes both the hurdles and paves the way for US suppliers to build nuclear power plants in India. According to the deal, the US will not track nuclear materials in India but the International Atomic Energy Agency (IAEA) will apply safeguards to all of its civilian nuclear installations.

• At present, all international conventions make the operators of nuclear power plants liable for damages, regardless of the cause of the accident. The maximum liability of the operator is usually limited to $300 million. The state takes responsibility for damages exceeding this limit. It may be noted that the costs of damages are likely to exceed $100 billion in both the nuclear disasters in Chernobyl and Fukushima.

• Failing to get adequate compensation from the plant supplier after the world's worst industrial disaster in Bhopal in 1984, Indian parliament passed the Civil Liability for Nuclear Damages Act, 2010 which makes suppliers of equipment liable for nuclear damages. Russia, which built two nuclear power reactors in Kudankulam in India, agreed to accept the supplier's liability for building two more reactors at the same site.

• Under the new deal, the US agreed to provide insurance coverage for nuclear damages to the suppliers of nuclear power plants. Since the US ban, Russia had been the only foreign supplier of nuclear power plants to India. Now, the USA is ready to enter into this lucrative market. France may also follow the suit. The participation of the western suppliers may encourage competition and result in a positive impact on both quality and costs of nuclear power plants in India.

Analysis of Impact of Obama’s Visit on the Nuclear Deal:

• In a visit heavy on pageantry and symbolism, the India-US civil nuclear deal took center-stage, with the two sides announcing a breakthrough to start implementing it commercially - a development that could potentially open the path for

Japan and Australia to sign nuclear deals with India.

• The importance of supplier liability is illustrated by the Fukushima nuclear disaster in 2011. When the reactors were hit by the tsunami that year, the weakness of the General Electric (GE) Mark I design was cruelly exposed. The reactors’ inadequate containment was unable to prevent the spread of radioactivity when the cooling systems failed and pressure built up inside the reactors. Although this design defect was first noted about 40 years ago, just as the Fukushima reactors were commissioned, the industry resisted regulatory changes that could have amended the disaster.

• The Japan Center for Economic Research estimated that the cost of cleanup at Fukushima may reach $200 billion. A 2013 expert study published in the journal Energy and Environmental Science estimated that the disaster may lead to about a thousand excess deaths due to cancer. However, it is unlikely that GE will ever be held accountable for its poor design choice. Under Japanese law, the supplier is protected from liability for an accident. This is the framework of exemption under which nuclear suppliers like to operate.

• Legal indemnity for suppliers creates a "moral hazard" - encouraging suppliers to take excessive risks since they don’t have to pay for the consequences. The case of GE not strengthening the Mark I containment is not an exception. The Presidential commission appointed to study the 1979 Three Mile Island disaster, which saw a partial nuclear meltdown, pointed out that the supplier, Babcock and Wilcox, was already aware of design defects that contributed to the accident, but never bothered to resolve them.

• Nevertheless, suppliers have ferociously defended their privilege of being free of liability, and they exerted tremendous pressure on the Indian government when the Civil Liability for Nuclear Damage Act was framed in 2010. Contrary to the industry’s propaganda, this is not a "tough" law. Indeed, several clauses in the law were directly lifted from an annex to the "Convention on Supplementary Compensation," created by the U.S. government to benefit its nuclear industry.

• The law channels primary liability for an accident to the operator — the public sector Nuclear Power Corporation of India - and caps it at Rs. 1,500 crores. This overrides the absolute liability judgment of the Supreme Court, passed after the Bhopal gas leak disaster, which had no such limit. The cap is about a thousand times smaller than estimates of the damage that a serious nuclear accident could cause. Therefore, the law is designed to protect the financial interests of the operators and the supplier; victims or the taxpayers will simply have to bear costs beyond this cap.

• Multinational suppliers are unhappy because a relatively minor clause allows the operator to recoup this compensation. By the scales of nuclear commerce, the amount of money involved is minuscule. A single reactor may cost up to an estimated Rs. 60,000 crores - 40 times the maximum amount the supplier could be liable for. The figures of each unit have been arrived at from studying plants under construction in Finland and France. If imposing liability on suppliers leads to cost increases, it can only mean that they are using the law as an excuse to escalate prices.

• A close reading of the statements made by advocates of their interests reveals what suppliers are really concerned about: the Indian law could set a precedent that could undermine the unfair international system of exemption that they enjoy. "If litigants were able to file suit against suppliers, essentially it could destroy the whole industry," declared Ashley Tellis, an American negotiator for the nuclear deal.

• The United Progressive Alliance government repeatedly tried to subvert the law, earning a sharp rebuke from Arun Jaitley who wrote in 2013 that "a leopard never changes its spots. The government's intention to dilute the right of recourse … [has] continued." He should explain why his own government is pursuing a similar policy. The current proposal of using a "legal memorandum" to reinterpret the law is similar to the UPA’s attempt to sign away its "right of recourse" on various pretexts.

• The most baffling feature of the current agreement is that it holds no tangible benefits for India. The United States has offered to sell two reactor designs - both of which are expensive and untested. The Westinghouse AP1000, which has been chosen for Mithi Virdi (Gujarat) is not in commercial operation anywhere and has encountered difficulties wherever it is being built. At Plant Vogtle, in the U.S. state of Georgia, Westinghouse and its partner Georgia Power have sued each other for a billion dollars over cost increases and delays. Even in China, the AP1000 has been delayed by about two years because of problems with reactor coolant pumps.

• Even less can be said for GE's Economic Simplified Boiling Water Reactor (ESBWR), selected for Kovvada (Andhra Pradesh). After years of questions about ESBWR's steam dryer, the design obtained regulatory approval from the U.S. Nuclear Regulatory Commission - the first step before construction can commence - only in September 2014. There are no firm orders for the ESBWR.

• The Vogtle plants were initially estimated to cost about $7 billion apiece. Even accounting for lower construction costs in India we showed - in a detailed study "Cost of Electricity from the Jaitapur Nuclear Power Plant" published in the Economic and Political Weekly - could translate into electricity tariffs that are as high as Rs. 15 per unit. If the government is looking for cheap electricity to promote development, importing American reactors hardly seems like a smart choice.

• Prime Minister Narendra Modi and President Barack Obama discussed methods of circumventing the Indian nuclear liability law to protect American reactor suppliers from the consequences of accidents caused by design defects. Although public details are scarce, if they have indeed reached an understanding on the issue, then this is not a cause for celebration; it should be a matter of deep concern.