Breaking the N-deadlock

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Breaking the N-deadlock

Sunday, 08 February 2015 | Rajiv Nayan

Breaking the N-deadlock

The nuclear relationship between India and US has now found settlement. The signing of N-deal underlined the significance of solution-searching approach between two established democracies, writes Rajiv Nayan

US President Barack Obama came to India as the chief guest of the Republic Day celebrations and though he might have gone back with a ‘parting shot’, he with all sincerity helped lay out with Prime Minister Narendra Modi a strategic roadmap that will undoubtedly have enormous significance. The relationship between India and the US is deepening and entering into a much matured phase in which differences and disagreements become natural and get gradually resolved. The nuclear relationship between the two countries has also traversed a long way with roadblocks and pitfalls and now has, in a sense, found settlement.

The significance of the nuclear relationship was underscored by the Indian Prime Minister when he addressed the media after interacting with President Obama on January 25. He stated: “The civil nuclear agreement was the centerpiece of our transformed relationship, which demonstrated new trust. It also created new economic opportunities and expanded our option for clean energy.

 In the course of the past four months, we have worked with a sense of purpose to move it forward. I am pleased that six years after we signed our bilateral agreement, we are moving towards commercial cooperation, consistent with our law, our international legal obligations, and technical and commercial viability.”

In the run up to the visit, the media along with think-tanks were actively discussing the Obama visit, particularly the civil nuclear energy initiative. The often intense discussions increased curiosity about the outcome. A joint statement was issued on January 25 and afterwards, Indian officials held a press conference in which several issues involved with the agreements were explained. The nuclear issue figured quite prominently in all.

In general, the public wanted to know the result on the two of the unsettled issues relating to civil nuclear energy initiative: civil nuclear liability and the administrative arrangements for implementing the 123 agreement. However, the two countries developed a more comprehensive though somewhat less exciting understanding on other nuclear issues as well. 

While Prime Minister Modi gave the first indication that the two countries had a breakthrough on the two ‘outstanding’ issues, Obama and the press briefing of the MEA officials informed that the two countries had arrived at “an understanding on two outstanding issues”. The foreign office clarified a number of nuclear issues which were being discussed and doubted in the media.

The first major issue of debate was regarding the Civil liability for Nuclear Damage Act, 2010. One section of the Indian and the US policy communities were arguing that this was a retrogressive law affecting India’s global nuclear commerce, especially for constructing the civil nuclear energy reactor, and on the other hand, another section was worried about the dilution of the Indian law under US pressure.

Some of the commentators went wild in their writings and wrongly informed that the legislation had been passed by the Bharatiya Janata Party Government. It must be reminded that in 2010, the United Progressive Alliance was in power, and the BJP was the principal Opposition party. It must also be recalled that when the Bill was being discussed in Parliament, the disappointing verdict of the Bhopal gas tragedy came. Consequently, the Indian political class demonstrated a rare unity to pass the law, which gave the right of recourse to operators.

 This means an operator, after paying the compensation to victims, may ask a supplier or more than one supplier to compensate it if it feels that the damage had been caused because of the faulty goods of the supplier or suppliers. This provision was made in Article 17 (b) of the Civil liability for Nuclear Damage Act.

Some over-the-top strategic experts have misled people that it is unique to the Indian legal system and has nothing to do with international law or treaty, citing the example of South Korea having similar laws and the US companies very actively participating in the South Korean nuclear energy programme. It is to be noted that the Indian Government has made a public statement that whether Article 17 of Civil liability for Nuclear Damage Act or Section 24 of the Civil liability for Nuclear Damage Rules, 2011, are compatible with the Convention on Supplementary Compensation for Nuclear Damage.

Also to recollect, during Obama’s November 2010 visit to India, a joint statement was issued which underlined that both countries had “enacted domestic legislations and were also signatories to the Convention on Supplementary Compensation.” India gave its commitment to ratify the Convention on Supplementary Compensation in the 2010 joint statement as well.

 This time around, India reiterated its commitment to ratify the Convention. The idea behind the signature of the Convention, according to the 2010 India-US joint statement, was to ensure “a level playing field for US companies seeking to enter the Indian nuclear energy sector, consistent with India’s national and international legal obligations”.

It was shocking to note that some commentators showing a great deal of sympathy for the US and its companies wanted India to defy the 2010 joint statement and the international convention which both countries had signed. It is unreasonable to ask India to ignore the law which the US itself endorses. Moreover, after 2011 Fukushima incident, the US has been in the forefront of promoting nuclear safety-related conventions.

In fact, in 2012 Nuclear Security Summit, the interface between nuclear security and nuclear safety was one of the key milestones. The US spends its resources in different parts of the world for making countries adopt domestic legislations harmonising international treaties and guidelines. If India does not make its domestic law compatible, it will be the US that will complain first.  

Some also propagated that the suppliers do not want any kind of liability. Indian companies deny that the private sector is against taking any liability. What it does not want is unlimited liability. Moreover, the leaders of industry stated that some ambiguities in the Act need to be removed. In the media briefing and before, the Department of Atomic Energy officials in different outreach meetings explained the law and rules concerning the civil liability for nuclear damage.

There are a couple of ambiguities involved with this issue that need to be explained. First, some companies want a few commas and words removed to make it better. This is a separate issue which may be taken up on its merit by the legal department of the Government of India. However, major Indian companies support the objective and provisions of the law.

Another issue is the determination of the supplier and operator. The general understanding is that the organisation that runs the reactor is an operator and the organisation that supplies equipment and other materials is the supplier. Section 24 (2) (b) of the Civil liability for Nuclear Damage Rules, 2011, defines supplier as a person who:

(i) manufactures and supplies either directly or through an agent, a system, equipment or component or builds a structure on the basis of functional specification, or

(ii) provides build to print or detailed designed specifications to a vendor for manufacturing a system, equipment or building a structure and is responsible to the operator for design and quality assurance, or

(iii) provides quality assurance or design services.

Because of the complicated and complex process of development of technology in India, it is possible that the organisation that operates a reactor may also supply some design, and thus is called a supplier. To find an easy way out of the complexity, Article 17 of the Civil liability for Nuclear Damage Act suggests that a contract signed by the parties will decide and determine which company will be designated as a supplier and which organisation will be called an operator.

There is no Memorandum of law coming as it was reported in the media. The memorandum, at best, will consist of clarifications and better explanation of laws and the rules currently existing and different questions posed about these laws and rules. The Memorandum of law may have a different nomenclature. It may come out as Frequently Asked Questions on the Civil liability for Nuclear Damage Act and its rules. The Indian and possibly, the American Government, need to put the document in the public domain for better understanding of companies.

Obama’s visit also resulted in the development of understanding on creation of Indian nuclear insurance pool. Globally, 26 such pools are in operation. The Indian Government proposed this pool as a ‘risk management scheme for liability’. Initially, the pool was being developed for Indian companies, but Obama was presented with the idea for American companies. General Insurance Corporation of India — that claims to provide Global Reinsurance Solution along with its four fully owned subsidiary companies: National Insurance Company limited, the New India Assurance Company limited, the Oriental Insurance Company limited, and United India Insurance Company limited — would fund Rs750 crore to the pool. The rest of the amount will come from the Government on a ‘tapering basis’.

As of now, the idea exists only in principle and specifics of the pool, including premium, are to be determined and decided. The Indian Government is optimistic that the US will work along with it and share information and best practices regarding the Indian insurance pool, so as to help it emerge as a ‘complete risk management solution for both operators and suppliers without causing undue financial burden’.

There are different models and premium for different tiers of suppliers available. While the details are yet to be worked out, the stakeholders will need to be given an opportunity to express their ideas. It seems for the purpose, the Government may organise a big seminar and several workshops. In such forums, many intricate details regarding the pool may be explained to suppliers.

However, some analysts do not appear enthusiastic about the idea. The pool is considered a drain on Indian tax payers’ money. It is true that the pool initially will have some notional funding from the Government and the Government-owned public sector companies. However, the construction of the reactor is expected to be completed in eight years. By then the pool will have funding coming from premiums, and over the years, the size of funding emanating from premium may overwhelm the Governmental share.

Another important issue that is to be settled in the future is the price of per unit of electricity Government purchases from the joint venture with the American companies. This issue has been on the negotiating table for a long period. The 2010 joint statement discussed “the completion of steps” for implementation of the India-US civil nuclear agreement and participation of American companies on “mutually acceptable technical and commercial terms and conditions that enable a viable tariff regime for electricity generated”.

A section of the Indian policy-making community maintains that the US companies and the Government got the entire liability highlighted in order to put pressure on the Indian Government to concede on price. This is not surprising. It was done during the previous Government’s time and it may continue with this Government.

 However, the Department of Atomic Energy and the foreign ministry officials negotiating the administrative arrangements apparently resisted the move to extract unreasonable price. If negotiations under the new Foreign Secretary are conducted in a more transparent way, and actually, the 2005 India-US nuclear deal was a great example of transparent negotiations, then it will instill confidence in the Indian people about pricing.

Obama’s visit had many other deliverables on the nuclear front which somehow were not highlighted because of the liability question. For example, India and the US are continuing their commitment to work together on many global nuclear issues, such as non-proliferation and nuclear security. However, Indian demand for membership of the four multilateral export controls regimes, especially the Nuclear Suppliers Group, is to be taken much more seriously. The US needs to talk to its allies and friends to adjust the criteria for membership of the regimes. It should expedite the membership of India for the Nuclear Suppliers Group and the Missile Technology Control Regime in the first phase. It may join other two regimes later.

Of many issues, ownership of the American companies, which have stakes of Japanese companies, is to be determined. There are some complexities involved with the Japanese export control laws over the use of components originating from it. It seems the Government has an alternative plan to overcome the Japanese ownership issue. ‘Make in India’ is one great solution. Under it, several key components may be manufactured in India. Moreover, the understanding developed between India and the US may influence Japan and France to accept the template for their future nuclear transactions with India.

The visit of Obama has shown that the India-US nuclear relationship believes in the principle of continuity. The September 2014 joint statement institutionalised the civil nuclear energy relationship by forming the Contact Group to advance implementation of bilateral civil nuclear cooperation. This group met thrice in December and January and is to be continued to resolve any future irritants.

Obama’s second outing to India was at one level symbolic and at the other functional. The signing of the nuclear deal importantly underlined the significance of solution-searching approach between two established democracies, which are committed to deepening their relationship.

The writer is at the Institute for Defence Studies and Analyses (IDSA), New Delhi

 

 

 

 

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