The petroleum ministry has said that in case of an oil spill in Indian waters, exploration companies operating the off-shore field will be liable to pay unlimited damages to public and private compensation seekers. The production-sharing contract with the company, however, speaks only of restoration of the site as per global best practices.
The unlimited liability is irrespective of whether the company willfully violated of the safety norms or otherwise. Though similar dispensations exist in most oil-rich countries, the US has adopted a lenient policy with the liability capped at $75 million in case no violation by the company is found. Analysts point out that since India is wooing global oil biggies to invest in exploration of oil and gas in its territories, the country could have had a limited liability clause like that in the US.
Article 14 of the production-sharing contract under the new exploration and licensing policy says that in the event of an emergency, accident or oil spill, the exploration company has to inform the government, implement a contingency plan and do site restoration as per global standards.
It does not explicitly speak of compensating for economic loss due to an accident or oil spill. The contract, however, requires making up for the injury or loss to property that occurs in the normal course of exploration and production activities because the contract recognises that some amount of environmental damage is bound to happen because of exploration and production.
Ministry officials have now said that in addition to bearing the cost of clean up, companies could be asked to pay unlimited damages for economic loss. Those claiming payouts for economic loss could be anybody including fishermen, coastal residents, local governments or businesses. In the US, this is limited to $75 million, unless the contractor is guilty of violating safety norms, willful misconduct and gross negligence.
?The general principle is that the contractor has to surrender the block to the government and pay for the entire cost of cleaning up as well as compensate for the economic loss. There would not be any ceiling on such compensation,? a senior government official, who asked not to be named, told FE. Nearly half of India?s crude oil reserves and three-fourth of natural gas reserves are offshore.
Another government official, who also did not want to be identified, said that unlimited economic claims could inflict a heavy toll on an oil producer. The government is examining if article 14 of the production sharing contract sufficiently deals with all possible situations.
After the April 20 oil spill off the coast of Louisiana, US policy makers are now looking at ways to make companies to be more open in sharing data about the actual quantum of oil spill and also to raise the $75 million statutory cap on compensation for economic loss to $ 10 billion. Data sharing is vital as compensation is based on the estimate of damage.
Lack of clarity on the liability of a contractor could lead to protracted litigation.
In the Bhopal Gas tragedy case?the country?s worst industrial disaster?the government had taken the stand that the polluter has to pay entirely for remediation or redevelopment of the accident site.
This implied that Dow Chemicals, which bought Union Carbide 12 years after the accident, was liable to pay Rs 100 crore for redevelopment. This led to a dispute as the company, which had already paid $470 million as per Supreme Court order as the final settlement of all claims, did not want to pay more.