Liability for nuclear accidents needs urgent reform

By Wang Jihong and Shi Jie, V&T Law Firm
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According to an announcement by the Japanese government on 5 August regarding compensation for damage resulting from the Fukushima nuclear accident, victims will receive a total of approximately US$38 billion.

Wang Jihong, V&T Law Firm
Wang Jihong
Managing Partner
V&T Law Firm

This includes compensation for economic losses and damage to health due to the government’s failure to order an evacuation; economic losses caused by the government-imposed embargo on agricultural, forestry and fisheries products from the area; the beef and other agricultural, forestry and fish products that could not be sold due to widespread rumours about radioactive contamination; damage to tourism, services, manufacturing and exports due to the panic about nuclear radiation; and the harm from radiation suffered by staff who took part in relief and reconstruction work.

Through the newly established Nuclear Damage Compensation Facilitation Agency, the government will also provide financial assistance to the Tokyo Electric Power Company (TEPCO), the body responsible for compensation for the accident.

What would happen in China

If a Fukushima-type nuclear accident occurred in China, who would be liable to pay compensation?

According to the Liability for Compensation for Damage Caused by Nuclear Accidents Reply, issued by the State Council (Guo Han [2007] No. 64), the maximum liability to be borne by the operator of a nuclear power plant in the event of an accident is RMB300 million (US$47 million). Should the compensation payable exceed this amount, the state may provide compensation up to a maximum of RMB800 million. If the nuclear accident is of major proportions, the State Council will decide whether the state should increase the amount of financial compensation payable.

石杰 Shi Jie 万商天勤律师事务所 合伙人 Partner V&T Law Firm
Shi Jie
Partner
V&T Law Firm

Accordingly, if the Fukushima nuclear accident occurred in China, the operator of the facility would only be liable for US$47 million, while the state would foot the bill for almost all of the US$38 billion compensation. This contrasts with the Japanese government’s statement that it would “provide necessary financial assistance to TEPCO”. As one industry expert put it, the effect of document No. 64 is that in reality, the entire compensation bill would be met by the state, not the operator.

Document No. 64 also provides that where an operator operates multiple nuclear facilities on a single site, they will be treated as a single facility. The total liability for all facilities on the same site would only be RMB300 million. It is precisely because of this provision that three nuclear power plants on a certain site in China, though belonging to three different owners, have with unusual unanimity been entrusted to a single management company, with the result that these three nuclear power plants “share” the maximum liability of RMB300 million. This almost defies belief!

Document No. 64 also states that nuclear operators must purchase enough insurance to cover their liability. After this provision came into effect, all nuclear operators in China bought third-party liability insurance with the insured amount equivalent to RMB300 million. Even if the “same operator” runs a number of nuclear facilities on the same site, as described above, it only needs to buy a single insurance policy covering RMB300 million.

In comparison with the actual damage caused by a nuclear accident, the amount of insurance coverage is minimal and plays no significant role in the sharing of risk.

Changing the system

The development of nuclear power in China has reached a peak. Approval has been given for 32 reactors, of which 28 are under construction, constituting more than 40% of the reactors under construction in the world. In the Foreign Investment Industrial Guidance Catalogue issued in 2007, the “construction and operation of nuclear power plants (where the Chinese party is the major shareholder)” is in the “encouraged” category. Foreign investors are already active in the sector.

The presence of foreign capital, combined with the strict limits to liability discussed above, puts the Chinese taxpayer at risk. The lion’s share of liability for a nuclear accident would be borne by the government. This leaves foreign investors free to profit with little risk, while the risk is borne by Chinese citizens and companies. The provisions of document No. 64 are in urgent need of reform.

Document No. 64 also provides that liability for damage arising from nuclear accidents should be set out in the PRC Atomic Energy Law (Draft). As this law is currently going through the legislative process, we should take this opportunity to increase the liability of operators substantially and establish a mechanism to gradually raise the amount of compensation to take account of inflation and other factors. Principal liability for compensation should progressively be shifted from the government to the operator.

Such changes are in line with current global trends. According to a report in The Guardian in January, the UK is substantially increasing the amount of compensation payable by companies for nuclear accidents from the current £140 million (US$220 million) to £10 billion. In this regard, the UK minister for energy and climate change, Chris Huhne, said he aimed to end the dependency of nuclear power in the UK on public subsidy. The acquisition by the French power group EDF of Britain’s biggest nuclear power company, British Energy (BE), just before this announcement was made may have contributed to this change in policy.

If the liability of operators for nuclear damage is substantially increased, it will be necessary to make clear provision in law for an adequate system of insurance covering the entire period of operation of nuclear facilities, so as to ensure that operators of such facilities always have the ability to pay adequate compensation.

The introduction of compulsory insurance may not significantly increase the financial burden borne directly by the operators of nuclear facilities. Third-party liability insurance would be available on the market. The increase in insurance costs should be small compared to total profits, so should not create a serious financial burden for nuclear power companies.

Wang Jihong is the managing partner of V&T Law Firm. She practises in the field of infrastructure development

Shi Jie is a partner at V&T Law Firm

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