Enact regulatory framework to tap the potential of space launch market

Regulatory framework

Given the unfamiliar nature of the domain, space faring nations were unaware of the potential for untoward accidents. Therefore, nations adopted numerous international treaties and countless resolutions (on a non-binding basis) to establish responsibilities and liabilities of launching states. The cornerstone of the outer space legal regime today is the 1967 Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies (Outer Space Treaty) which stipulates that nations undertaking activities in space must accept responsibility for a governmental or non-governmental agency involved. 

The Outer Space Treaty was followed by the 1972 Convention on International Liability for Damage Caused by Space Objects (Liability Convention) which expounded on liability principle enshrined in the Outer Space Treaty. The Liability Convention is based on the principle that regardless of the entity launching a space object, if it was launched from a nation’s territory, or from its facility, or if that nation procured the launch to happen then that nation would be liable for all damages which result from a space object. India is a signatory to the above treatises. 

India has long considered emulating the licensing approach adopted by advanced space faring jurisdictions like the US and the UK. The US and the UK have enacted domestic legislations that mandate private industries to obtain a license from their respective governments to operate as, inter alia, a launch service provider, subject to meeting eligibility requirements; for instance, prior to being granted a license, an applicant must prove its financial worthiness and obtain a minimum quantum of insurance. These domestic legislations also establish a framework to monitor the activities of the licensee and empower the government to modify or terminate a license if the licensee’s fail to adhere to the terms of the license agreement.

Presently, India does not have any domestic legislation stipulating the liability/ financial responsibility of a launch service provider. Therefore, liability of a launch service provider is potentially uncapped. From a practical perspective, an unlimited liability will make it very difficult for launch service providers to secure financing. It also increases insurance costs and thereby the overall mission costs. 

Given the global nature of the space launch market, this could result in opportunities being lost to jurisdictions outside India. In this scenario, it becomes imperative to address the question as to whether liability should be capped or uncapped. In jurisdictions like the US and the UK, the government makes the launch service provider to execute ‘hold harmless’ agreements and provide other necessary assurances (like naming the government as an additional insured party). However, the liability of the launch service provider for a licensed activity is capped in these jurisdictions. It is fair to say that no private enterprise will take the commercial risk associated with an uncapped liability. Therefore, it becomes crucial for the government to introduce a liability law to address this situation. 

The FDI regime

Under the present regime, 100 percent FDI (foreign direct investment) is permitted for the establishment and operation of satellites under the government approval route, subject to sectoral guidelines of the Department of Space (DoS) and ISRO. However, the sectoral guidelines to be followed require clarity – a fact that was highlighted by the Foreign Investment Promotion Board (FIPB) in February 2014 while considering an FDI application for this sector made by Jupiter Satellite India Limited. The application was ultimately returned and FIPB noted that any application for investment in this sector would be considered once there is “absolute clarity for foreign investment in this sector”. 

On the commercial front, India’s satellite launch programme may have attracted global attention for its accelerated rate of development, but the reality is that it is still not as prolific as other jurisdictions - China has over 20 launches a year. Further, the focus is slowly shifting to the lucrative heavy lift market (upwards of 3,000 kg), a sector in which India trails. While the government has allocated more funds to the DoS in the 2017 budget, in real terms, it still does not compare to the space budgets of other advanced jurisdictions. Therefore, there is plenty of scope for foreign investment in this sector.

Risk mitigation for industry players

While this field is still in its infancy, there are tremendous opportunities for private industries to participate in space programmes. Considering the regulatory vacuum, satellite launch service contracts between a customer and a launch service provider become crucial in terms of determining the liability of all parties. In the absence of a liability law in India, in the interim, it is absolutely essential for all parties involved in an aerospace project to contractually outline roles, responsibilities and obligations as per contract law prevailing in India. While entering into a contract to provide satellite launch services, the following key terms should be borne in mind:

An inadvertent error or overlook in the contractual terms could lead to exponential liability considering the high stakes involved in the game!
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