It is my pleasure to report today that Ukraine has made significant progress on the development of its nuclear liability regime in the last four years. In fact, its nuclear liability regime now has a higher liability limit and is more comprehensive than those of any other Eastern European country. In this improved environment, contractors now can prudently consider participating in individual Ukrainian nuclear projects. Ukraine has acceded to the 1963 Vienna Convention on Civil Liability for Nuclear Damage, and has enacted a comprehensive nuclear liability law. Yet, while Ukraine's nuclear liability limit of 50 million Special Drawing Rights (SDRs -- 1 SDR = about US$1.4) is higher than that of any other Eastern European country, it does not match the minimum figure of 150 million SDRs prescribed by the revised 1997 Vienna Convention or the new 1997 Convention on Supplementary Compensation for Nuclear Damage (CSC). Until both Ukraine and the United States ratify the CSC, the courts of our two countries are not bound by each other's laws, so a risk of uncovered nuclear damage claims remains. Thus, it still is ultimately a matter of business judgment whether American and other Western contractors are adequately protected for a given nuclear project in Ukraine (and elsewhere).

It is important to reiterate the fundamental factor that underlies the concerns of privately-owned contractors: As I pointed out at a meeting on nuclear liability which Ambassador Alexander Chaly and other Ukrainian Government representatives participated in Paris in July 1994, private (as distinguished from State-owned) companies have a fundamental obligation to protect the assets of their shareholders. Private companies are exposed to tort and other liabilities to the full extent of their assets. The greater the assets of a private company the greater its liability concerns are. Private companies ordinarily do not enjoy the immunities that governments and State-owned entities do. Company directors and officers even can be sued by shareholders for imprudent business decisions. Because of the large judgments and defense costs that unfortunately are a part of the American tort system, our contractors feel especially vulnerable. Private companies simply cannot risk bankruptcy, particularly for one or two small contracts.

To eliminate the nuclear liability problem associated with nuclear-safety assistance and co-operation programs and to better ensure protection of the public, Ukraine and other Eastern European countries were urged to adopt domestic legislation that channels nuclear liability to the plant operator, to provide for an adequate limitation on liability, and to become parties to the international nuclear liability conventions in force in most of Western Europe (i.e., the 1963 Vienna Convention and the 1988 Joint Protocol that links it with the 1960 Paris Convention). (footnote 1)

Ambassador Chaly, then Head of Treaty and Legal Affairs of the Ukrainian Foreign Ministry, asked me to co-chair an international consultative conference held in Kyiv in January 1995 on Ukraine's nuclear liability law and accession to the Vienna Convention. (A few of the key participants at that conference, including Member of Parliament Mikhailo Pavlovsky and now EnergoAtom President Nur Nigmatullin, are here today.) At the 1995 conference, we reviewed in detail why the Western nuclear industry was so interested in Ukraine's nuclear liability regime: As part of the 1992 Lisbon Initiative, the United States and certain Western European Governments had begun providing safety assistance for Soviet-designed nuclear power plants (14 of which are operating in Ukraine). Implementation was delayed by the unavailability of adequate liability protection of the public in the event of a large nuclear incident. (footnote 2) Some work proceeded, but not of the type originally contemplated.

Over the last four years, Ukraine has carefully considered and acted upon the issue of nuclear liability. Ukraine and the G-7 in early 1996 established a special Joint Task Force on Ukrainian Nuclear Legislation (JTF). (footnote 3) We held our first meeting at the European Bank for Reconstruction and Development (EBRD) in London in July 1996, and have had several meetings since then. The JTF has proven particularly beneficial. The senior level of its Government's participation has made clear Ukraine's seriousness about addressing nuclear liability. For example, the Ukrainian participants have been led at each meeting by Professor Valery Kukhar, Head of the Committee on Nuclear Policy and Ecological Safety, Office of the President of Ukraine. Others who regularly have played key roles are Member of Parliament Mykola Dudchenko (now manager of the Rovno NPP), Vladimir Lyukyanets of the Cabinet of Ministers (who is here today), Yuri Kot of the Ministry of Energy, Vladimir Ryabtsev and Vladimir Krokhmal of the Ministry of Foreign Affairs, Vladimir Shvytay of the Presidential Committee (whose Deputy Head, Mr. Shmarin, is here today), and Svetlana Plachkova of the Verkhovna RADA Nuclear Committee (chaired by Mr. Pavlovsky). The non-Ukrainian participants represent the Governments of France, Germany, the United Kingdom and the United States (whose representative is Mr. McRae of USDOE), as well as the OECD NEA, the European Commission, the International Atomic Energy Agency (IAEA), and the EBRD. As its only private sector member, I have been able to bring contractors' specific concerns to the JTF's attention.

The JTF so far has concentrated on the matter of nuclear liability, and has provided comments on various draft Ukrainian laws. The last JTF meeting (June 3d and 4th in Paris) concentrated on the draft law "On Compensation for Nuclear Damage and Nuclear Insurance." Our next meeting (in Kyiv) is expected to devote further attention to this draft nuclear insurance law, which will be another key component of Ukraine's nuclear liability regime. (Meanwhile, a nuclear insurance pool was established in Ukraine in 1996, but it is not expected to be fully operational for some time. (footnote 4) In the interim, the Ukrainian law (infra, Section 77) provides payment of any nuclear damages for which the nuclear plant operator is liable shall be ensured by the Ukrainian Government.

Ukraine's first nuclear liability law was adopted in February 1995 as part (Chapter XIII) of the "Law of Ukraine on the Use of Nuclear Energy and Radiation Safety," a framework law that regulates all activities in the area of the peaceful use of nuclear energy ("1995 Law"). (footnote 5) The nuclear liability provisions were revised by the "Law of 1996 on Introducing Alterations to the Law on the Use of Nuclear Energy and Radiation Safety" and by the "Law of [December] 1997 on the Introduction of Amendments to certain Ukrainian Legislative Acts in connection with the Accession of Ukraine to the Vienna Convention on Civil Liability for Nuclear Damage" ("December 1997 Law"). The amendments were made to optimize harmonization with the Vienna Convention after Ukraine's accession in 1996. Provisions that were lacking were exclusive liability of the installation operator and a designated liability limit. As amended in December 1997, the 1995 Law now provides for legal channeling of liability for nuclear damage to the operator, which liability is termed as "absolute," i.e. regardless of fault. (footnote 6)

The December 1997 Law set the limitation on the operator's liability for nuclear damage at 50 million SDRs, notwithstanding recommendations for a higher amount. At the last JTF meeting, both Mr. McRae of USDOE and I reiterated Ukraine's liability limit of 50 million SDRs is of continuing concern to the U.S. Government and contractors. Professor Kukhar replied that consideration will be given to increasing the amount at the time Ukraine decides whether to ratify the revised 1997 Vienna Convention.

Ukraine acceded to the 1963 Vienna Convention on September 20, 1996, which entered into force on December 20, 1996. The provisions of the 1963 Vienna Convention are considered an integral part of Ukraine's national law by virtue of Article 9 of the June 1996 Ukrainian Constitution. (footnote 7) Ukraine signed the 1997 Protocol to Amend the Vienna Convention on September 29, 1997, but has not yet ratified it. Prompt action on this ratification is urged, because it should result in, among other things, raising Ukraine's liability limit to a minimum of 150 million SDRs.

Beginning in 1994, the United States Government put forward at the IAEA what now is known as the Convention on Supplementary Compensation for Nuclear Damage. The CSC was designed to be a new free-standing convention that will link countries with strong nuclear liability systems. It would distribute the burden among several countries in the unlikely event there were another catastrophic nuclear accident. It allows the United States to keep in place our earlier and slightly different Price-Anderson Act system (which leaves tort law to our individual States and utilizes "omnibus" coverage for anyone liable (i.e., economic channeling), instead of legal channeling of liability to the plant operator, as under the Paris and Vienna Conventions). (footnote 8) The United States and Ukraine became the first two countries to sign the CSC on September 29, 1997. It now has been signed by thirteen countries. We hope it will be ratified by both the United States and Ukraine (and others) in the near future. Being in treaty relations is the long-term solution to the international nuclear liability issue, because it would ensure, among other things, that all claims would be heard in a single competent court of the country where the nuclear incident occurred.

The Chornobyl Shelter Implementation Plan (SIP) presents special nuclear liability concerns. On March 5th and 6th of this year, there were meetings on the Chornobyl SIP at the EBRD in London. The first day was limited to the members of the Joint Task Force, and the second day included industry representatives of the teams EBRD had short-listed for early projects at Chornobyl. Significantly, the Ukrainian participants confirmed that the Vienna Convention and the Ukrainian domestic law will apply to the Shelter Object as an integral part of the Chornobyl Nuclear Power Plant, which is a "nuclear facility" whose "operator" is the new National Nuclear Energy Generating Company (EnergoAtom). A special decree subsequently was issued by the Prime Minister to confirm that EnergoAtom is the liable operator of the Chornobyl Shelter. It provides all reactors at a given site constitute a single nuclear installation.

The Ukrainian authorities still are working a separate "Nuclear Guarantee" for Chornobyl SIP work based on the principles of the Vienna Convention and Ukraine's domestic legislation. It, for example, has been expected to cover nuclear liability associated with the Shelter Object outside Vienna Convention countries.

There also remains an issue whether EnergoAtom has the requisite authority to waive liability for damage to on-site property on behalf of the Ukrainian State. Protection for this liability generally is not provided for by either the Vienna Convention or the Ukrainian Nuclear Law, so the matter of nuclear damage to on-site property must be addressed separately.

In conclusion, Ukraine has made exemplary progress on the development of its nuclear liability regime since 1994. As noted, its regime has a higher liability limit, and is more comprehensive than those of any other Eastern European country. Ukraine has acceded to the 1963 Vienna Convention, and has signed the Joint Protocol, the 1997 Vienna Convention and the CSC. Yet, Ukraine's nuclear liability limit of 50 million SDRs should be increased. Both Ukraine and the United States should ratify the CSC. Meanwhile, contractors must make business judgments as to whether they would be adequately protected for a given nuclear project in Ukraine. As in the case of any international nuclear project, this requires weighing such factors as the nuclear and nonnuclear risks associated with the particular proposed contractual activity; the amount of money to be made under the contract; the contractor's level of control, supervision and involvement; the presence of other contractors and the extent of their assets; the type(s) of nuclear materials involved; the proximity of the facility to population centers, water courses, and national borders; the potential for claims outside States party to the Vienna Convention; etc. In other words, much work can proceed between the United States and Ukraine, but it should be done after diligent consideration of the potential nuclear and other risks.

Footnote 1: The nuclear liability conventions' common principles are channeling of liability to the installation operator, absolute liability, liability limited in amount, liability limited in time, a single competent court to adjudicate claims, compulsory financial security, and nondiscrimination based on nationality, domicile or residence. Most of these elements now have been incorporated into Ukrainian law.

Footnote 2: Bilateral Agreements, such as the one the United States entered into with Ukraine in 1993, provided unprecedented nuclear liability coverage. However, these Bilateral Agreements were intended solely for Lisbon Initiative work; and, provide the framework for government-to-government protection, which only Western governments, not private contractors, can enforce. For example, the Bilateral Agreement with the U.S. contains waivers of future claims by the Ukrainian Government, but it does not waive claims by third parties. It also does not waive sovereign immunity, making it virtually unenforceable.

Footnote 3: Another entity that has examined and commented on Ukraine's nuclear liability regime is the OECD Nuclear Energy Agency (NEA) Contact Group on Liability Questions Raised by Nuclear Safety Assistance Programmes for Eastern Europe. The NEA Contact Group was established in 1994, but has only Western members. The three U.S. members are Ben McRae of the U.S. Department of Energy (USDOE), David Kremen of Westinghouse, and myself.

Footnote 4: Note that the Western nuclear insurance pools have expressed concern about the fact that the Ukrainian Law does not have a prescription period (statute of limitations) for personal injury claims. This may eliminate the possibility of foreign reinsurance.

Footnote 5: For a more comprehensive elaboration of Ukraine's nuclear laws, see Contemporary Developments in Nuclear Energy Law: Harmonising Legislation in CEEC/NIS (Dr. N. Horbach, ed.) (Kluwer Law International, The Hague, London, Boston: 1998), Part III (containing sections by Yuri Kot, Vladimir Ryabtsev, Omer Brown et al). See also Nuclear Energy Law and Regulation in Central and Eastern Europe and the NIS, Study Prepared By Dr. N.L.J.T. Horbach under the auspices of Centre for Transboundary Damage and Compensation (Amsterdam: 1998) at 109-119 [hereinafter "CTDC Study"].

Footnote 6: Another commentator has cautioned that some sort of liability upon a supplier for defects in supply or services is envisaged by the December 1997 Law, and that the extent to which such liability can be avoided by special contract clauses also depends upon the degree such clauses are enforceable according to Ukraine's general civil law or relevant commercial laws. See CTDC Study, supra, at 115-116.

Footnote 7: That Article provides: "International treaties currently in force, as ratified by the Supreme RADA of Ukraine, form part of Ukraine's national legislation. The conclusion of international treaties which contravene the Constitution of Ukraine is possible only following the introduction of requisite changes to the Constitution of Ukraine."

Footnote 8: The United States heretofore has not been a party to one of the international conventions for a variety of reasons, including our relative geographic separation, our tort system based on individual State laws, and the early adoption of the Price-Anderson Act (in 1957, before the Paris and Vienna Conventions).