Who Picks Up Tab For Arctic Oil Spill?

While experts are still arguing about the extent of damage caused by the major oil spill last month from a pipeline in Russia's Arctic, an equally important issue is who is going to pay for it.


Russian companies may be too cynical to protect the environment in the interests of being good corporate citizens. But once they start to see there are significant costs associated with damaging the environment they will become more serious about cleaning up spills of oil, and indeed about stopping spills in the first place.


The Russian government has already quietly slapped a fine of 62 billion rubles ($20.2 million) on Komineft, the company that operated the pipeline near the city of Usinsk. The fine, while small by Western standards, is still significant for Russia.


Moreover, environmental groups, local government and citizens' groups could also launch civil actions under Russian law for much bigger sums, a move that would have much wider consequences.


According to Alexander Shuvalov, a spokesman for the Environment Ministry, the 62 billion ruble fine was set in mid-October, shortly after the spill occurred.


The size of the fine, however, is likely to be the subject of considerable controversy given the uncertainty over the size and causes of the spill.


Under Russian regulations, ecological fines are based on a set table related to the amount of pollutants released into the environment. Also, accidental pollution is fined at only one-tenth the rate for habitual excessive pollution.


In this light, it is fairly extraordinary that the fine was setby the government before any of these issues had been resolved.


According to Shuvalov, Komineft's fine was calculated on the basis of an accidental spill of 14,000 tons of oil, which represented the company's version of events.


But environmental groups and some independent experts have put the release of oil in the tundra at anything from 60,000 tons to even 270,000 tons of oil, eight times the size of the Exxon Valdez disaster.


The question of whether the spill is accidental or habitual is also controversial. There were apparently many smaller spills over the past few years from pipelines operated by Komineft, suggesting a regular pattern of spills.


Given the fact that the fine has been based on Komineft's view of things, it is likely that the company will be happy to pay. According to the Environment Ministry, it has also already agreed to do so.


Separate from the fine is the question of civil liability. Yes, it does exist in Russia, in theory.


A spokesman for the Russian branch of the environmental group Greenpeace said that the group was about to sue Komineft in the Supreme Court under Russia's Law on Nature Protection.


It is not clear yet in whose name Greenpeace will sue. Greenpeace is talking about acting on behalf of local residents of the Komi region, including indigenous people, whose fishing grounds may have been damaged by the spill.


This may sound unrealistic for Russia, a country where less than 10 years ago the government caused the worst nuclear accident in the world without facing a single civil action for damages.


But in theory Russia's Law on Nature Protection does create clear civil liability for damage to the environment. This is especially strong for indigenous people whose rights to the use of traditional hunting grounds are protected in the constitution. There have even been some recent legal precedents.


If Komineft is made to pay, the lesson may prove valuable for the Russian oil industry and the environment alike.


Geoff Winestock is a Moscow-based correspondent for the Journal of Commerce.