Brazilian lawsuit over Samarco dam will struggle to match U.S. BP claim
Any relief felt by the mining firms BHP Billiton and Vale over what looked like a final $5.7 billion settlement for the cost of last year’s dam burst at their Brazilian iron ore mine must have evaporated when state prosecutors scoffed at the deal and last Tuesday filed a $44 billion claim of their own.
What is far from clear, however, is whether that number, based on little more than the analogy of the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, which will have cost BP some $40 billion in claims and fines, will bear scrutiny.
The prosecutors did not break down their claim into components, saying that “unless you want to assume that each millimeter of Brazil’s environment is worth less than that in the United States, it is unacceptable that the valuation of damage caused by the defendant companies be less, prima facie, than $43.8 billion”.
A member of the prosecuting team, Jorge Munhos de Souza, said they had used the comparison of the BP case because it is “considered paradigmatic in environmental law”.
But even environmental lawyers say the number probably represents little more than a speculative opening bid.
“They are really just doing their job to get the full extent of the cost of remediating this issue. Otherwise, the burden is borne by the taxpayer,” said London-based ClientEarth lawyer Sophie Marjanac.
When the U.S. energy group Chevron faced a 40 billion real ($11.3 billion) claim over a 2011 deep-sea oil well spill northeast of Rio de Janeiro, it finished up settling for just 300 million reais ($85 million).
There are also questions about the comparability of the disasters at the Samarco mine and in the Gulf, and of the legal systems dealing with them.
TOWN OBLITERATED
Certainly, the collapse of Samarco’s Fundao dam, which released 12,000 Olympic swimming pools’ worth of waste water from iron ore mining, was dramatic.
The torrent not only killed 19 people but also obliterated Bento Rodrigues, a town of 800, inundated another, larger town with mud, and polluted almost 1,000 km (600 miles) of the Rio Doce.
Although the river was far from pristine before the damburst, and the toxicity of the iron ore tailings is disputed, the disaster killed fish, contaminated water used for agriculture, and left at least 250,000 people without running water for weeks.
Federal prosecutor Eduardo Santos de Oliveira, part of the task force that filed the 359-page lawsuit, said the figure of 155 billion reais ($44 billion) was based on a comparison with the social, environmental and humanitarian damage done by the Gulf disaster.
Yet even some state prosecutors who are not involved in the claim say it is far-fetched to compare the dam burst to the release of more than 3 million barrels of oil into the Gulf of Mexico over a period of three months, after a blowout that killed 11 oil workers.
That spill led to the closure of more than a third of the Gulf of Mexico for seven months to fishing for tuna, shrimp, crab and oyster, among others, damaging not only the marine environment but also tourism all along the U.S. Gulf Coast.
BP is paying out on more than 300,000 individual civil claims worth over $16 billion as well as $20 billion in government civil claims, and $4 billion in criminal penalties, in addition to the $14 billion it spent on the original clean-up operation.
Claimants in that case were significantly helped by U.S. pollution laws drawn up after the 1989 Exxon Valdez oil tanker spill. These provide strict rules for cleaning up the damage and picking up the bill for every barrel spilt.
LEGAL UNCERTAINTY
Brazilian law does require full restoration of the environment to its prior state as well as compensation for loss of property, goods and business, but does not provide such clear guidance for calculating damages, legal sources say.
And then there is the question of the settlement that Samarco and its 50-50 joint owners BHP and Vale have agreed with Brazilian authorities, which provides, among other things, for Bento Rodrigues to be rebuilt in a different location. It amounts to 20 billion reais, to be paid over 15 years.
The federal prosecutors, who enjoy broad autonomy and are increasingly confident in pursuing corruption as the government is rocked by scandal, criticized the deal as inadequate and implied that the authorities had sold the Brazilian people short.
But two days after they filed their suit, with the aim of challenging the settlement, a judge ratified the deal. The prosecutors vowed to appeal, creating fresh legal uncertainty.
Samarco Chief Executive Roberto Carvalho told Reuters that the agreement “already carries all the socio-economic and environmental reparations which this other lawsuit proposes”.
Ultimately, pragmatism may also come into play.
As a foreign-owned multinational with large interests in the United States, BP had little leverage to resist its prosecution.
But BHP, while listed in Britain and Australia, would have relatively little to lose if it chose to quit Brazil. It has already written down its share of Samarco from $1.2 billion to zero, and its only other significant asset in Brazil is a minority stake in the Alumar alumina smelter and refinery.
Vale, meanwhile, is based in Brazil, where it has 154,000 employees and contractors - an economic mainstay that it is in Brazil’s interests not to damage too heavily.
The equities and commodities analysts Bernstein said in a note that not only did the prosecutors’ arguments not bear scrutiny, but also that, “like it or not, but Brazilian prosecutors cannot exert the same kind of pressure on Vale and BHP as the Americans could on BP”.
What is far from clear, however, is whether that number, based on little more than the analogy of the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, which will have cost BP some $40 billion in claims and fines, will bear scrutiny.
The prosecutors did not break down their claim into components, saying that “unless you want to assume that each millimeter of Brazil’s environment is worth less than that in the United States, it is unacceptable that the valuation of damage caused by the defendant companies be less, prima facie, than $43.8 billion”.
A member of the prosecuting team, Jorge Munhos de Souza, said they had used the comparison of the BP case because it is “considered paradigmatic in environmental law”.
But even environmental lawyers say the number probably represents little more than a speculative opening bid.
“They are really just doing their job to get the full extent of the cost of remediating this issue. Otherwise, the burden is borne by the taxpayer,” said London-based ClientEarth lawyer Sophie Marjanac.
When the U.S. energy group Chevron faced a 40 billion real ($11.3 billion) claim over a 2011 deep-sea oil well spill northeast of Rio de Janeiro, it finished up settling for just 300 million reais ($85 million).
There are also questions about the comparability of the disasters at the Samarco mine and in the Gulf, and of the legal systems dealing with them.
TOWN OBLITERATED
Certainly, the collapse of Samarco’s Fundao dam, which released 12,000 Olympic swimming pools’ worth of waste water from iron ore mining, was dramatic.
The torrent not only killed 19 people but also obliterated Bento Rodrigues, a town of 800, inundated another, larger town with mud, and polluted almost 1,000 km (600 miles) of the Rio Doce.
Although the river was far from pristine before the damburst, and the toxicity of the iron ore tailings is disputed, the disaster killed fish, contaminated water used for agriculture, and left at least 250,000 people without running water for weeks.
Federal prosecutor Eduardo Santos de Oliveira, part of the task force that filed the 359-page lawsuit, said the figure of 155 billion reais ($44 billion) was based on a comparison with the social, environmental and humanitarian damage done by the Gulf disaster.
Yet even some state prosecutors who are not involved in the claim say it is far-fetched to compare the dam burst to the release of more than 3 million barrels of oil into the Gulf of Mexico over a period of three months, after a blowout that killed 11 oil workers.
That spill led to the closure of more than a third of the Gulf of Mexico for seven months to fishing for tuna, shrimp, crab and oyster, among others, damaging not only the marine environment but also tourism all along the U.S. Gulf Coast.
BP is paying out on more than 300,000 individual civil claims worth over $16 billion as well as $20 billion in government civil claims, and $4 billion in criminal penalties, in addition to the $14 billion it spent on the original clean-up operation.
Claimants in that case were significantly helped by U.S. pollution laws drawn up after the 1989 Exxon Valdez oil tanker spill. These provide strict rules for cleaning up the damage and picking up the bill for every barrel spilt.
LEGAL UNCERTAINTY
Brazilian law does require full restoration of the environment to its prior state as well as compensation for loss of property, goods and business, but does not provide such clear guidance for calculating damages, legal sources say.
And then there is the question of the settlement that Samarco and its 50-50 joint owners BHP and Vale have agreed with Brazilian authorities, which provides, among other things, for Bento Rodrigues to be rebuilt in a different location. It amounts to 20 billion reais, to be paid over 15 years.
The federal prosecutors, who enjoy broad autonomy and are increasingly confident in pursuing corruption as the government is rocked by scandal, criticized the deal as inadequate and implied that the authorities had sold the Brazilian people short.
But two days after they filed their suit, with the aim of challenging the settlement, a judge ratified the deal. The prosecutors vowed to appeal, creating fresh legal uncertainty.
Samarco Chief Executive Roberto Carvalho told Reuters that the agreement “already carries all the socio-economic and environmental reparations which this other lawsuit proposes”.
Ultimately, pragmatism may also come into play.
As a foreign-owned multinational with large interests in the United States, BP had little leverage to resist its prosecution.
But BHP, while listed in Britain and Australia, would have relatively little to lose if it chose to quit Brazil. It has already written down its share of Samarco from $1.2 billion to zero, and its only other significant asset in Brazil is a minority stake in the Alumar alumina smelter and refinery.
Vale, meanwhile, is based in Brazil, where it has 154,000 employees and contractors - an economic mainstay that it is in Brazil’s interests not to damage too heavily.
The equities and commodities analysts Bernstein said in a note that not only did the prosecutors’ arguments not bear scrutiny, but also that, “like it or not, but Brazilian prosecutors cannot exert the same kind of pressure on Vale and BHP as the Americans could on BP”.
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