The Hindu Business Line : The corporate road to an industrial disaster

French best-selling author Dominique Lapierre (L) and co-author Javier Moro in front of the foundation stone of a clinic for victims of the Union Carbide gas leak tragedy... Their book It Was Five Past Midnight in Bhopal tells the story of corporate neglect.

WORDS cannot capture the magnitude of the disaster that struck Bhopal on that fateful night of December 2, 1984. One author describes it as `the Hiroshima of chemical industry.' A report of an International Medical Commission, released in December 1966, said it was "a tragic model of an industrially induced epidemic."

Twenty years have passed; yet, as grimly narrated in a recent report by Amnesty International ("Clouds of Injustice: Bhopal 20 years after", November 29) the survivors of the tragedy have not received adequate compensation and medical assistance from the government or the US Company.

Hours after the tragedy struck, hundreds of `ambulance chasers' swooped on Delhi and Bhopal. They were disappointed and left in despair. Now, the field is rife with disputes among corporate lawyers over the accountability of the Government of India, Union Carbide India Limited (UCIL) and Dow Chemical Company, which acquired UCIL in February 2001. Litigation continues both in India and in the US. It is difficult to do justice to all the issues agitated in these. Here is a look at the relationship between UCIL and its parent in the US and the road to disaster.

The latest press release from Union Carbide Corporation (www.unioncarbide.com/bhopal), reiterates its stand and claims thus: "The Bhopal plant was owned and operated by Union Carbide India Limited (UCIL), an Indian company. The other stockholders included Indian financial institutions and thousands of private investors in India. The plant was designed, built and managed by UCIL using Indian consultants and workers."

It goes on to refer to the later sale of UCIL to another Indian company and explains that "as a result of their sale of shares in UCIL, Union Carbide retained no interest in — or liability for — the Bhopal site."

Dow Chemical Co., in its turn, relies on this press release and says, "While Dow has no responsibility for Bhopal, we have never forgotten the tragic event and have helped to drive global industry performance improvements."

The plea is that UCIL was an autonomous entity that had freedom of operation and that Union Carbide Corporation (UCC) had no control over it, and thus not accountable or liable for any misdemeanour of subsidiaries. This is a fig-leaf, which all multinationals wear when they meet with legal problems in host countries.

It is the essence of the multinational operation that there should be central direction. The degree of control may vary in individual cases. In the case of UCC, the manner and extent of control over subsidiaries is detailed in 1,300 pages of the UCC's Corporate Policy Manual! As Amnesty International commented, UCC's "attempt to absolve itself of any responsibility in the running of UCIL is at odds with its Corporate Charter".

In the affidavits filed by the Government of India before the US District Court, New York, these arguments were challenged with full documentation. The Indian Law Institute has published these documents (Mass Disasters and Multinational Liability: The Bhopal Case, 1986). In its affidavits, the Government drew attention to UCC's Corporate Policy Manual, which explicitly says, "Except for certain situations, it is the General Policy of the Corporation to secure and maintain effective management control of an affiliate. Normally this is accomplished through ownership of 100 per cent of affiliate equity where this is consistent with the laws, policies and customs of the host country."

Unfortunately for UCC, it had to battle long with the Government of India to retain UCIL as its subsidiary. This was under FERA guidelines. Added to this were its own internal struggles, among various departments over finance, technology, scale, marketing, etc.

Though UCIL had obtained government approval to establish the MIC (methyl isocyanate)-based project in 1972 for the manufacture of Sevin, it was apparent that UCIL and its parent had to face several problems connected with its setting up. UCIL needed assurances from UCC over project design, safety, etc., and also entered into a separate technical services agreement.

There were doubts about the capacity planned and also the designs to keep huge quantities of MIC in storage. In their book "It was five past midnight in Bhopal" (Full Circle, 2001), Dominique Lapierre and Javier Moro refer to the advice of German engineers at Bayer that they "never risk keeping a single litre for more than ten minutes; UCC/UCIL planned for storage of several hundred litres!"

By the winter of 1978, when the project was half way through, there were worries about cost overruns and potential demand for pesticides in India, especially for Sevin. The feasibility of scaling down the plant was discussed in a meeting in New York. As the project had reached an advanced stage, it was decided to go ahead with it.

The Ag Product Division was keen to continue with its exports to India and had, on its own hands, the over-capacity built in the US plant. Both were oversized plants with undersized markets. The idea of exporting from India was ruled out, as it would eat into the global profits of UCC.

A Bhopal Task Force had been formed to deal with the issues. It had also refused permission in 1981 to UCI to export Sevin. Other options, such as making different carbaryl items, were not found commercially attractive.

The Sevin project could not be abandoned for a more strategic reason. Unless UCC put through the project, it could not retain UCIL as a subsidiary. This led to the FERA battle, to which a reference was made earlier.

When the Foreign Exchange Regulation Act of 1973 (FERA) came into force, foreign companies had to get their non-resident equity regulated by the guidelines issued under Section 29 of the Act.

Under these guidelines, UCIL, which was till then holding a non-resident equity of 60 per cent, was not eligible to retain more than 40 per cent. It made prolonged and persistent efforts to retain UCIL as its subsidiary. This alone would be in keeping with its corporate charter suggested earlier.

UCC had its clout with the US Government and could also lobby with Indian authorities. Surprisingly, in its Report, Amnesty refers to these efforts and says, "The Finance Plan, referring to negotiations with the government of India on the extent of equity, clearly reveals that UCC never intended to reduce its equity holding to anything less than what would give it a controlling stake in UCIL"

Ultimately, the Government of India succumbed to the demands of companies such as UCIL by revising (or `amplifying' as it was termed) the guidelines.

Under the revised guidelines, UCIL was able to retain its subsidiary status, as a substantial part of its manufacture would be technology-based products. Sevin was indeed accorded this status.

The approval of the Reserve Bank of India was given on July 5, 1980. It was a long battle. Unfortunately for UCC, it had won UCIL as a subsidiary. In the meantime, it had lost the Indian market for pesticides.

The demand for Sevin did not pick up and stocks began to accumulate in Bhopal. UCC had neither studied the Indian market nor the psychology of the Indian farmer. Sevin may have efficacy in large US farms, but not in the small farms in India.

Insects fleeing from farms treated with Sevin ravaged neighbouring untreated farms. The Indian farmer was unwilling to switch to a hazardous pesticide. Moreover, the country faced severe drought and farming was substantially reduced. The Bhopal plant had turned sick and seemed beyond redemption.

Savage cost-cuts were imposed. Many studies, done later, clearly reveal the unwise and imprudent steps taken by UCIL to cut on safety systems. Critical air-conditioning for MIC tanks was shut down.

Across the Bhopal plant, there were signs of neglect and indifference. As Lapierre and Moro describe, "Quite naturally there had come a point where people preferred card games in site canteens to tours of inspection around the dormant volcano."

Even discounting the hyperbole, it was known that UCIL was rudderless. By 1981, several instances of neglect leading to gas poisoning and deaths came to notice. A special team sent from the US drew pointed attention to many lapses and suggested rectification.

Some authors allege that these were not even brought to the notice of the management, which, by then, was wholly Indian. The warnings of a local journalist, Mr Keshwani, went unheeded. He got a young journalist award months after the disaster.

By October 1984, the possibility of dismantling the plant and shipping it to other developing countries such as Brazil and Indonesia was considered and abandoned.

One important factor militating against it was that the MIC plant was so corroded that it could not be dismantled. A week before the disaster, a decision was taken to sell the unit to willing Indian buyers. Within days, disaster struck. UCC blamed it on sabotage by Indian workers and sticks to the tale until the twentieth year of its occurrence.

In a broad sweep covering many years, the above narration describes the corporate road to a disaster. Till date, the parent company disowns any responsibility for the event though it fought a long battle to retain UCI as its subsidiary.

As current estimates go, nearly 7,000 persons died and more than 500,000 people are in a state of affliction or living death. The Government of India's record is no better. But that is another story.

(The author, a former Finance Ministry official, has experience in international, financial and trade issues.)