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Nuclear insurance: Who will pay if, God forbid...

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Irmanto Gelūno / 15min nuotr. / The recently shut-down Ignalina Nuclear Power Plant was not insured.
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The new Visaginas Nuclear Power Plant, expected to cost over 17 billion litas (9 b euros), is to be a joint project of Lithuania, Latvia, and Estonia. But who will pay the damages, should something go wrong? Symbolic insurance of the power plant is to cost at least one billion litas. Sure, up until now, Lithuania relied solely on good luck: the old Ignalina Nuclear Power Plant, judged by many to be rather unsafe, ran without any insurance.

No insurance company could possibly pledge to cover tens of billions in damages in case of a nuclear catastrophe, so plants are usually insured for minimum amounts with the state budget having to take care of the rest.

“Exclusive liability of the operator means that in the case of an accident, all claims are to be brought against the nuclear operator. [...]  Claimants do not have to figure out who is responsible – under law it will be the nuclear operator,” claims World Nuclear Association that state-run Visaginas Nuclear Power Plant is a member of.

Minimum commitment

Lithuania's commitment to insure any nuclear facility is spelled out in Vienna Convention, signed in 1963. Its signatories (in Europe: Bulgaria, the Czech Republic, Hungary, Lithuania, Poland, Romania, Slovakia, and Ukraine) must purchase insurance policy for their nuclear plants. Back in 1963, the minimum amount (adjusted to current gold price) was about 240 million US dollars (630 m litas, 180 m euros).

A protocol of Vienna Convention, signed in 1997 and effective since 2003, increased the insurance significantly – now the signing countries must insure their nuclear facilities for at least 360 million euros (1,24 billion litas).

Shareholders of Visaginas Nuclear Power Plant (VNP) – Lithuania, Latvia, Estonia, and Japanese company Hitachi – can themselves decide on the amount of the insurance. Tomas Laurinaitis, head of insurance broker company Rinkos Spektras, hopes that involvement of private capital in VNP construction will encourage increasing the insurance above the minimum requirement.

“Operators, equipment suppliers should take into consideration the real extent of possible damages. One must bear in mind that the new power plant is to be built in a rather densely populated area and the potential impact might affect not just a contained region, but entire countries. Private capital is much more cautious about these things – they understand that any accident could ruin their business overnight,” Laurinaitis told 15min.

Should shareholders agree on an above-minimum amount of insurance, the total sum of fees to be paid over the entire exploitation period would likely exceed the minimum coverage (1.24 billion litas).

If damages of a nuclear accident are bigger than the insurance, the rest will have to be covered by the state.

Sums that nuclear facilities are usually insured for are relatively small. According to Laurinaitis, compulsory insurance for a Boeing aircraft, for instance, is 1.3 billion litas – well above the nuclear insurance stipulated by Vienna Convention. Before the Protocol of Vienna Convention came into effect, aircrafts were insured for twice as much as nuclear power plants.

Responsible countries do not economize

Martynas Nagevičius, director of Lithuanian Energy Consultants' Association, says that it is impossible in principle to insure nuclear power plants for big sums.

“A relatively low insurance limit is determined so that nuclear energy remains financially competitive. Therefore, the state subsidizes a nuclear power plant. In case of Fukushima, damages were about 210 billion litas. No country could possibly accumulate that amount of money,” Nagevičius told 15min.

However, according to Laurinaitis, responsible and risk-conscious businesspeople insure nuclear facilities for great sums.

“Many European, Asian, North American nuclear power plants are insured against accidents for 3.9 to 5.2 billion litas. In other words, they have weighted the risks. These facilities are built and operated by entities that deal with money, so they consider the impact that – God forbid – an accident in their facility might have on their business,” Laurinaitis believes.

Countries that have signed Paris and Brussels Conventions pledge to a much higher insurance limit. The minimum sum for them is 5 billion litas (1.55 b euros). Countries that have ratified both agreements are Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Slovenia, Spain, Sweden, and the United Kingdom.

Lithuania would have to pay alone

Insurance companies operating in Lithuania are much too small to take on the responsibility of insuring a nuclear reactor. Moreover, assessing nuclear risks requires specific expertise. Globally, there are rather few companies or associations that insure against nuclear accidents.

According to Visaginas Nuclear Power Plant company, the future plant operator could insure with European insurers, like Nuclear Risk Insurers Limited, Lloyd's Nuclear Syndicate, etc.

The operator could also join the European Mutual Association for the Nuclear Industry (EMANI) or European Liability Insurance for Nuclear Industry (ELINI). Members of these associations – owners and operators of nuclear power plants – have put together their resources (from 345 million to 1.7 billion litas) to cover damages incurred by their fellow members.

It is the operator that is in charge for insuring nuclear facilities – in this case, Visaginas Nuclear Power Plant.

“It is a legal entity operating in Lithuania, so the power plant must be insured like a company and not political association,” Laurinaitis says.

In case of a nuclear accident, damages would have to be liquidated by Visaginas Nuclear Power Plant and the Lithuanian state. Other strategic partners would not be obligated to chip in. “I think that Latvia, Estonia, and Poland would be primarily concerned with eliminating accident effects in their own territories. As for helping Lithuania, it would depend entirely on their good will,” the insurance broker notes.

According to VNP spokespeople, Lithuania will choose an insurance company “following its public procurement procedures.”

Risks change

According to accepted practice, insurance period covers a plant since its construction, while certain policies remain effective well after its operations are shut down. Insurance fees change depending on the risks of a nuclear accident.

Giedrius Čiurinskas, director of Colemont insurance company that is an associate member of Lloyds of London and provides insurance for nuclear plants in the US, Canada, and Europe, says that nuclear insurance has several stages.

The first stage covers the period of construction until the first delivery of nuclear fuel. During this time, it is obligatory to cover health and property of third parties, construction, facility transportation, also insure against possible delays.

The second stage covers nuclear fuel shipping, installation, and testing. The insurer indemnifies unforeseen incidents while transporting and guarding the fuel.

The third stage begins when the plant is turned on and starts generating electricity. It gets insured against impact of nuclear incidents for people and environment. In addition, the risk of discontinuing business is taken into account.

The fees are calculated according to the stage the plant is in and the type of maintenance and repair work it undergoes.

“In assessing the risk, insurance brokers consider who the producer is, their history, reliability of their reactors, safety measures they employ, etc. Therefore, saying now what insurance for the nuclear power plant will cost is rather a long shot,” Rinkos spektras director Laurinaitis says.

Insurance fees may rise following various accidents in other parts of the world, too.

“Catastrophes like tsunami in Japan or 9-11 in the US have impact on almost all types of insurance, since they cause rise in re-insurance that all insurers have to pay, more or less,” Čiurinskas says.

According to him, insurance premiums might be as high as tens of millions US dollars and more. Whether to pay it in annual installments or more frequently will be up to the VNP operator and its insurance company.

Ignalina Nuclear Power Plant was not insured

Operator of Ignalina Nuclear Power Plant (INP) that was shut down two years ago as well as Lithuania's previous governments must have prayed for smooth operation, since the plant was not insured against accidents. About a decade ago, INP administrators ran a competition to insure the plant. However, the rates offered by a single applicant were so hight that it would have had to be included into electricity bills – therefore, the idea to insure against nuclear accidents was dropped.

“I'm surprised at the view taken by the state and state-run company,” Laurinaitis comments on the discretion left for the state to determine liability. “No one asks a vehicle driver if he or she wants to insure against accidents. If the law stipulates a compulsory insurance, then you simply go and get one. No one demands if it is worthwhile to do so or not. [...] Many market players are dissatisfied. If Lithuania has ratified relevant conventions, then Lithuania must stick to them without pondering on whether it's worthwhile or not.”

Not a step without insurance

If Lithuania indeed builds a new nuclear power plant, this time it will not get away without insurance. According to the Law of Nuclear Energy, any operator running nuclear facilities must insure it in a way prescribed by the Government or find other ways to secure funds needed to eliminate damage of nuclear accidents.

In addition to this, the Government signed a protocol on 21 September 2011, obliging the Environment Ministry to draft regulations for nuclear insurance and damage elimination funding.

Another institution, State Nuclear Energy Safety Inspection, is also working on a licensing regulation project that is to include a provision, obliging applicants to prove that their facilities are insured or they have other sources to fund damage elimination.

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