Managing the spillover of an oil spill
………..by.C. GOPINATH ..in the HINDU BUSINESSLINE newspaper.
An oil spill in the Gulf of Mexico has been grabbing the attention of four States in the south of the US, apart from lawmakers and senior administration officials. Environmentalists fear the spill's effects on the region's fragile ecosystem will be devastating. The company has been taking various remedial measures that have cut the flow. But the spill is expected to stop fully only when relief wells are dug, sometime in mid-August. BP has not been in a particularly shining light in its response. Reports suggest that weeks before the explosion, the company had taken measures to cut costs, which may have led to the disaster. Moreover, company estimates of the amount of oil spilling have been seen as being consistently underestimated. About two million gallons a day of oil are gushing out. The CEO, Mr Tony Hayward, in appearances before Congressional committees investigating the disaster, did not know much that you wondered what he was being paid to do. For the US, the previous record oil disaster was when the tanker Exxon Valdez spilt 10.8 million gallons off the coast of Alaska in 1989. In the last nine weeks, the current spill has already eclipsed that one.
Oil industry insiders were put in charge of regulating this industry (much like finance industry insiders running the Treasury). As always, this disaster has stirred politicians to make their usual calls for the country to be less oil-dependent and the need to embrace a clean energy future. The US President, Mr. Barack Obama, has announced a moratorium on off-shore oil exploration. One can expect more regulation, but we should not get our hopes up as, like in the case of financial services, industry insiders are the ones chosen to regulate the industry.
Court delay
The President joined the fight with fighting words, including “Oil spill is assaulting our shores” and “We will make BP pay for the damage it has caused”. Then, he and his officials negotiated with the top management of BP and made them commit to put $20 billion (Rs 90,000 crore) over the next four years in an escrow fund that would pay damage claims, clean up the spill, compensate people (like fishermen) whose livelihood has been affected and so on. An additional $100 million has to be deposited into a fund that would support unemployed oil workers. A panel would adjudicate claims but unhappy individuals will retain their right to go to court. But let us not forget that after the Exxon Valdez disaster, the company concerned managed to stretch the cases through courts for 19 years till it got the Supreme Court to slash the punitive damages by one-fifth from $2.5 billion (Rs 11,250 crore).In the BP spill, the Government has hastened to add that this fund is not a cap on liabilities, meaning that the company may be expected to pay more. The US media, while giving due coverage to the BP oil spill, has also been reminding us of an ongoing disaster many times the size of the BP situation that has been taking place in Nigeria.
In the oil-rich Niger delta, a New York Times report says, oil spills averaging 11 million gallons a day has been happening every year for 50 years. Oil spills from operations of Exxon Mobil and Royal Dutch Shell (due to corroded pipelines, theft and sabotage) have devastated vast swaths of coastline and mangrove forest, among others, with the fishermen and local residents being forced to relocate. The Nigerian army, who guard these operations, has put down protests. Some protestors, like Ken Saro Wiva, have been executed. Oil is too important for the Nigerian economy, or rather the personal bank accounts of Nigerian leadership, for them to challenge the companies. The US, which gets about 10 per cent of its oil requirements from Nigeria, has also stayed silent. One would hope that the US, with its demonstrated concern for the environment and taking of responsibility, would move swiftly to settle another issue where it is directly involved.
Agent Orange
During the Vietnam War, over 35 years ago, the US Government dumped about 20 million gallons of Agent Orange and other herbicides over parts of Vietnam, Laos and Cambodia as a defoliant, to remove the forest cover that was protecting the opposition fighters. Over 5 million acres of forest were decimated and dioxin, a toxic chemical used in the defoliant, is said to have seeped into soil and water systems, and led to thousands of deaths and births of children with disabilities. US veterans and those of its allies in the war (Australia, Canada) have received some compensation in US courts. But, ironically, these courts have dismissed claims from Vietnamese victims and have ruled that the US Government (and also the companies as sub-contractors) has sovereign immunity. A recent estimate to clean contaminated sites is just $300 million (Rs 1,350 crore), a tiny fraction of one per cent of the amount that BP has been required to set apart.
I, for one, will not blame the US for using a different standard when it comes to what happens within its own shores. Just like people, governments act in their own self-interest (and morality be damned), which is to put the interests of its own people at the top. I would only hope that other countries take a similar view when it comes to protecting the interests of their own citizens.(The author is Professor of International Business and Strategic Management at Suffolk University, Boston, US. blfeedback@thehindu.co.in)
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