As a nuclear weapons country and not being one of the five countries identified
as a nuclear weapons state, India is excluded from the Nuclear Non-Proliferation
Treaty (NPT). India can join the NPT only if it disarms and joins as a non-nuclear
weapons state, something that the geopolitical situation in the South Asia region
makes politically impossible.
States that are not party to the NPT are also excluded from nuclear trade by the
Nuclear Suppliers Group (NSG). However, because of India’s impeccable record of
nonproliferation, the pressing need to reduce the fossil fuel being burned by the
world’s second most populous country, and the tremendous market potential for Western
countries, the NSG in 2008 decided to grant India a waiver, opening its international
vendor market to India. This unique exemption was a consequence of years of negotiations
and strong support from many influential countries, particularly the United States.
Subsequent to receiving the NSG exemption, the Indian government has entered into
agreements with France (September 2008), Russia (December 2008), and the United
States (October 2008) for the supply of nuclear technology and material. India and
the IAEA signed a nuclear safeguards agreement in February 2009. Other agreements
have been signed with Canada, Kazakhstan, the United Kingdom, South Korea, Mongolia,
Australia, and Argentina. Negotiations are ongoing with the EU and Japan.
As a condition of its entry into the international nuclear energy market, India
was required to enact a domestic nuclear liability law. In 2010, the Indian parliament
approved the CLNDA.
Many have criticized the act’s liability threshold of approximately $330 million
as inadequate. Comparisons are made to the Bhopal gas tragedy in which a toxic gas
leak from a chemical plant owned by Union Carbide led to the deaths of thousands
and damages paid in the region of $1 billion, an amount still considered to be inadequate
and the subject of severe criticism.
The most controversial provision introduced by the CLNDA is the principle of supplier
liability. When India’s ruling party presented the act to the Indian parliament,
its provisions were similar to those found in international conventions such as
the CSC and the Paris or Vienna Convention. Liability was channeled exclusively
to the operator of the nuclear power plant, and the supplier could be held liable
only in limited circumstances. However, trade union and civil society representatives
argued that foreign suppliers would not bother with safety compliance if a system
permitted them to escape the consequences of liability. (Fifty years earlier, in
International Problems of Financial Protection against Nuclear Risk, the
same argument was put forward to reject the concept of supplier liability.)
Advocates of supplier liability also pointed out that defects in the supplier’s
technology or services might not be noticed by the operator until after the operator
has commenced operation of the nuclear power plant.70
Indian legislators concluded that the act should reflect Indian interests and well-being,
and thus suggested that “there should be a clear cut liability on the supplier of
nuclear equipment/material in case they are found to be defective.”71 The intention was to
ensure that compensation would not be inadequate for victims of a nuclear accident.
The act as finally promulgated contains a right of recourse that the operator can
claim against the supplier in cases where “the nuclear incident has resulted as
a consequence of an act of supplier or his employee, which includes supply of equipment
or material with patent or latent defects or sub-standard services.” (The act also
contains other controversial provisions, all of which are presented in a brief analysis
in Appendix C.)
Is the New Principle of Supplier Liability Acceptable to Supplier Countries?
The United States, France, and Russia have consistently opposed the provisions of
the CLNDA. Nevertheless, Russia already has an operational nuclear power plant at
Kudankulam, and France is in the initial stages of work on the Jaitapur Nuclear
Power Project in western India. Whether these countries accept the law will play
a significant factor in determining the broader acceptability of the concept of
Recent reports indicate that the Indian government has determined that the next
two reactors to be built in Kudankulam (i.e., Kudankulam 3 and 4) should be covered
by the CLNDA. The Russian government has steadfastly opposed this position, arguing
that the agreement between Russia and India for setting up the Kudankulam Nuclear
Power Plant predates the act’s promulgation.
The Indian government has agreed that the supplier-liability provisions under the
CLNDA do not apply to Kudankulam 1 and 2 (reactors that are already operational),
an interpretation that is being challenged before the Indian Supreme Court. There
is a strong likelihood that the court will decide that even Kudankulam 1 and 2 fall
within the ambit of the CLNDA.72
If India’s highest court determines that the CLNDA applies to all aspects of Kudankulam,
the only way in which the intergovernmental agreement between Russia and India could
supersede the act would be for the Indian parliament to pass a new law or amend
the existing law. Until such action, all nuclear reactors in India, including Kudankulam
1 and 2, would be covered under the CLNDA, irrespective of any agreement with any
foreign government. Amending the act appears to be a political impossibility at
present. Russia may therefore be forced to accept that the act applies to all of
its reactors in Kudankulam. In turn, this has led to various reports that the Russian
government will renegotiate the price of the underlying contracts.73 These reports now appear
to be correct as Russia already seems to have arrived at a preliminary agreement
with the Indian authorities in what is being considered an acceptance of the principle
of supplier liability under the CLNDA.74
At this stage, the agreement is still being finalized, but the principles agreed
upon by both India and Russia appear to be modeled on a commercial understanding
that Russia would purchase insurance for each component that it supplies to the
Indian operator and the cost of this insurance would be included in the price of
the product supplied. This would result in an escalation of costs for each component
and consequently an escalation in the price of nuclear power. Nevertheless, this
would amount to an acceptance of the principle of supplier liability and if such
an agreement were to be finally signed between India and Russia, it would mark a
watershed moment in international nuclear liability jurisprudence.
Although France has also consistently opposed the provisions of the CLNDA, in a
recent interview French President François Hollande stated, “Regarding civil nuclear
liability, we obviously respect Indian law. It is the sovereign decision of a country
that has witnessed catastrophes like the Bhopal gas tragedy.”75
While Hollande’s statement does not constitute definitive acceptance of or willingness
to be subject to the CLNDA, many Indian reports have interpreted it as a positive
indication. Further, French conglomerate AREVA has already made substantial investments
in India and seems unlikely to abandon its potential investments there simply because
of the CLNDA. While there has been no statement from the French authorities that
they would not go ahead with investments in India in the nuclear energy sector because
of the CLNDA, if Russia and India arrive at an agreement, there is a strong possibility
that France would follow the same model in relation to supplier liability.
The United States has consistently maintained the position that until India synchronizes
the CLNDA with the CSC and ratifies the CSC, U.S. companies such as GE and Westinghouse
will not take part in nuclear power projects in India.
Recently, the principal deputy assistant secretary of state for South and Central
Asian affairs, Geoffrey Pyatt, urged the Indian government to consult with the IAEA
to ensure that the Indian liability law accomplishes the objective—shared by the
United States and India—of moving India into the international mainstream of civil
nuclear commerce, stating, “India’s nuclear liability is not in line with international
nuclear liability principles reflected in the CSC.”76 Pyatt also clarified that the current liability
law imposes a risk of heavy financial burden on equipment suppliers seeking to enter
the Indian market and exposes them to significant financial penalties in the event
of a nuclear accident.
Recent reports indicate that the Indian government is proposing some sort of waiver
by which certain provisions of the Indian liability law would not apply to U.S.
This view, however, has been criticized, and it would be extremely difficult for
the Indian government to exempt only American companies from certain parts of the
Indian liability law.78
On June 13, 2013, Westinghouse and the Nuclear Power Corporation of India Limited
(NPCIL) signed a memorandum of understanding (MoU) for an early works agreement
in relation to the Westinghouse AP 1000.79
While the MoU is silent on issues of liability, this does indicate a willingness
on the part of both India and the United States to work together to address the
issue of supplier liability. Thus, the situation with regard to the United States
is evolving, but it does suggest that the United States will continue lobbying with
India until the CLNDA has been changed to bring it in line with prevailing international
nuclear liability principles, or at least until the CLNDA is diluted in relation
to its application to U.S. nuclear supplier companies.
In the aftermath of Fukushima, will Japan consider a supplier liability model similar
to the one introduced by India? This is an uncomfortable question for suppliers.
Critics have pointed out that the nuclear industry and its suppliers made billions
building and operating the reactors at Fukushima, yet the Japanese government and
its citizens are bearing a substantial portion of the liability arising from the
disaster. Greenpeace Japan is leading efforts to ensure that Japanese law is amended
to introduce the concept of supplier liability in line with the CLNDA.80 Although the likelihood
of such an amendment being passed may not be high, discussions about supplier liability,
which prior to the Fukushima incident were practically unheard of, are now an increasing
part of the public discourse.
As noted in the introduction to this paper, 1,400 plaintiffs have filed a lawsuit
against the supplier companies that manufactured the reactors at the Fukushima nuclear
power plant. The goal of the plaintiffs in this lawsuit is not economic compensation,
but rather to raise awareness with respect to the issue of supplier immunity from
nuclear liability. Clearly, this indicates a strong movement in Japan to introduce
an element of supplier liability in the operation of nuclear power plants.
The Way Forward: Alternatives
Politically, the Indian government probably cannot at this point limit the already
expanded concept of supplier liability. The question that therefore arises is whether
foreign countries and suppliers will accept India’s nuclear liability law.
Instead of opposing the CLNDA and insisting on its amendment (as the United States
is doing), an alternative model for France and Russia (one that is reportedly being
contemplated by both countries) would be to renegotiate their contracts/agreements
with the Indian government. For instance, the following points could be renegotiated:
- Price escalation: The present system of excluding supplier liability is primarily
driven by a desire to make nuclear energy cost-effective; it allows nuclear operators
to channel the costs of insurance so that suppliers do not also have to budget for
such insurance. If every supplier were to take out its own insurance, the cost of
such insurance (which in the nuclear sector is significantly high) would be passed
on to the operator and ultimately to the consumer. Therefore, if supplier liability
is accepted as a principle, nuclear supplier countries will insist that the extra
cost of such insurance be factored into the costs to be borne by the operator. That
is, supplier countries would balance the additional liability being imposed on them
by increasing the cost of their product. Russia ostensibly is adopting this line
of negotiation in relation to the reactors at Kudankulam for which construction
has not yet begun.
- At the time of delivery of any product related to a nuclear power plant, suppliers
could insist on receiving a certificate of satisfaction from the operator noting
that the product meets all specifications and is of the highest quality. The Indian
operator could provide the certificate after appropriate testing or even after a
period of time of using the product. The supplier would then insist on the operator’s
assurance that, having tested and deemed itself fully satisfied with the product,
the operator agrees contractually that the product of the supplier does not suffer
from any “patent or latent” defects as envisaged under section 17(b) of the CLNDA.
- Compliance of the supplier with quality assurance programs or manuals prescribed
by the Indian operator could also be documented to serve as future proof that the
product supplied did not suffer from any defects.
- The supplier could then also insist that the Indian operator indemnify the supplier
against any action or claim that might be brought against the supplier by any third
In order to benefit from the massive commercial potential of India’s civilian nuclear
energy sector, France and Russia may want to focus their resources on contractual
negotiations rather than on changing the law.
If they do pursue this approach, it would mark a watershed moment in international
nuclear liability law. Even tacit acceptance of the concept of supplier liability
by countries such as France and Russia would have the effect of inviting a broader
examination of the principles of legal channeling that have underpinned international
nuclear liability law for the last five decades. Countries that are on the threshold
of accepting civilian nuclear energy—particularly those within the South Asia and
ASEAN regions—might also explore the possibility of adopting laws similar to India’s
CLNDA. And if major suppliers accept the principle of supplier liability in India,
they would have difficulty denying a similar right to other nations. The possibilities
and challenges thrown up by the CLNDA, though still in the realm of speculation,
are exciting and have the potential to alter in fundamental ways the present discourse
on international nuclear liability.
70 See State
of India, Department-Related Parliamentary Standing Committee on Science and Technology,
Environment and Forests, “Two Hundred Twelfth Report on ‘The Civil Liability for
Nuclear Damage Bill, 2010,’” August 18, 2010, http://www.prsindia.org/uploads/media/Nuclear/SCR%20Nuclear%20Liability%20Bill%202010.pdf.
Abraham, “Defective Law on Nuclear Liability: India Walks Alone on Nuclear Jurisprudence,”
The Economic Times, http://articles.economictimes.indiatimes.com/2012-12-20/news/35933839_1_nuclear-liability-kudankulam-nuclear-damages-act.
for example, “Reactors to Cost Double,” Indian Express, December 20, 2012,
and “More Liabilities Will Push Up Kudankulam Costs: Russia,” Indian Express,
October 15, 2012, http://www.indianexpress.com/news/more-liabilities-will-push-up-kudankulam-cost-russia/1016840/.
“India Cracks N-liability Barrier with Russia.” See also “Russia Concedes India’s
Nuke Liability Law Terms,” The Free Press Journal, http://freepressjournal.in/russia-concedes-indias-nuke-liability-law-terms/.
Bagchi, “We Are Building Same Reactors for Ourselves That We Are Selling to India:
Hollande,” Times of India, February 14, 2013, http://timesofindia.indiatimes.com/india/We-are-building-same-reactors-for-ourselves-that-we-are-selling-to-India-Hollande/articleshow/18504284.cms.
76 “US Advises
India to Consult IAEA on Nuclear Liability Law,” Samay English, December
1, 2012, http://english.samaylive.com/world-news/676519035/us-india-iaea-geoffrey-pyatt-international-atomic-energy-agency-.html.
Dikshit and J. Venkatesan, “Manmohan May Carry Nuclear Liability Dilution as Gift
for US Companies,” The Hindu, September 19, 2013, http://www.thehindu.com/news/national/manmohan-may-carry-nuclear-liability-dilution-as-gift-for-us-companies/article5142882.ece.
Abraham and M. P. Ram Mohan, “Don’t Waver Now on Nuclear Liability,” The Hindu,
September 20, 2013, http://www.thehindu.com/opinion/lead/dont-waver-now-on-nuclear-liability/article5147177.ece.
and Nuclear Power Company of India Limited Sign Memorandum of Understanding for
Early Works Agreement,” Westinghouse Press Release, as reported by Reuters,
June 13, 2013, http://in.reuters.com/article/2012/06/13/idUS133717+13-Jun-2012+PRN20120613.
Naidoo, “Fukushima Disaster: Holding the Nuclear Industry Liable,” The Guardian,
March 11, 2013, http://www.guardian.co.uk/sustainable-business/fukushima-nuclear-industry-disaster-liable.