Given the size of the disaster in the Gulf of Mexico, we suspect that $20 billion may not be enough to compensate all of the people whose lives and futures have been derailed by the spill. But it’s a good start.
It took days of very public pressure from President Obama and countless hours of private negotiations, but BP finally agreed on Wednesday to put $20 billion in an independently managed compensation fund. After meeting with the company’s top executives at the White House, Mr. Obama stressed that the amount is not a ceiling on BP’s obligations, which by some estimates could exceed $40 billion when the costs of cleaning the spill and restoring the gulf’s damaged ecosystem are also factored in.
“The people of the gulf have my commitment that BP will meet its obligations,” the president declared, adding that the agreement would not pre-empt any claims in court. BP did not publicly address the issue of a cap, but its chairman, Carl-Henric Svanberg, did apologize “to the American people” and vowed to “look after the people affected” and “repair the damage to this region and the economy.”
There are a lot of reasons, of course, not to trust BP.
The company insisted for years that it was ready to deal with a huge oil spill in the gulf, and it was completely unprepared. After the blowout on the Deepwater Horizon rig, it downplayed the size of the spill, starting with 1,000 barrels a day, then moving to 5,000, then — as its tallies became less and less credible — turning over the job of estimating to government scientists. Their present estimate is as much as 60,000 barrels a day.
When President Obama first started pressing for an escrow fund, and a suspension of dividend payments to BP’s shareholders, the company pushed back hard, rallying British politicians to argue that they were being unfairly roughed up by the Americans.
Mr. Svanberg appears to have decided that fessing up and anteing up is now the best course. On Wednesday, BP also announced that it would suspend dividend payments of about $7.5 billion over the next three quarters — in effect giving gulf residents higher priority over its own stockholders. It also agreed to set aside an additional $100 million to pay workers idled by Mr. Obama’s suspension of deep-water drilling in the gulf. This should relieve the pressure on the president to resume that drilling.
Having $20 billion in guarantees should reassure the spill’s victims, and all Americans, that BP will not be able to walk away from its responsibilities. It is also reassuring that the fund will be managed by Kenneth Feinberg, a veteran administrator who won high marks for overseeing the 9/11 victims’ compensation fund.
Mr. Feinberg’s task then — determining the value of a life, in nearly 3,000 cases — was extraordinarily daunting. This one will involve many more claims from many more people. There is not a lot of time for Mr. Feinberg to get up to speed. BP is currently handling individual claims and has been criticized for uneven treatment and not responding quickly enough to people who could be weeks or even days away from losing their businesses.
The White House will need to keep pressing BP hard. The agreement gives the company several years to deposit the $20 billion in order to manage its cash flow and not scare off investors. It must be held to that timetable. And it must begin making provisions to ensure a full payout of the billions more in cleanup and restoration costs and civil penalties under the Clean Water Act that are also its responsibility.
We would like to think the battle is over. It is not. Claims in the 1989 Exxon Valdez case were not finally adjudicated until two years ago, and there is still oil on the rocks of Prince William Sound.