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Russia's environmental watchdog files US$2B claim against Norilsk over oil spill

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Russia's environmental watchdog files US$2B claim against Norilsk over oil spill

Russia's environmental watchdog filed a claim Sept. 10 of 147.78 billion Russian rubles against Arctic mining group PJSC Norilsk Nickel Co. over a catastrophic fuel spill at the end of May at its OJSC Norilsk-Taimyr Energy Co. subsidiary.

The environmental agency known as Rosprirodnadzor previously requested Norilsk to settle the US$1.96 billion claim voluntarily, before threatening legal action in September. Norilsk set aside US$2.1 billion in the first half of the year to cover the accident, reducing its net profit for the period to just US$45 million from close to US$3.0 billion a year earlier.

SNL Image

Oil equipment supplier Neftetank finished pumping out 15,000 cubic meters of water contaminated with fuel from the Ambarnaya river on Sept. 8.
Source: PJSC Mining and Metallurgical Company Norilsk Nickel

"I am not surprised by this turn of events as I initially expected the government to have a free hand in determining the amount of the fine (which was set at a record value) and enforcing it," George Voloshin, the head of the Paris branch of independent integrity risk consultancy Aperio Intelligence, told S&P Global Market Intelligence.

Norilsk described the watchdog's decision to pursue the matter through the court as "premature," in a same-day statement. Even though the cleanup of one of the rivers contaminated by the accident has been completed, the final amount of diesel collected has not yet been assessed, according to the group.

Only the completion of an ongoing expert review will reveal how much fuel was spilled and the resulting cost of the environmental damage, Norilsk said.

The leading nickel and palladium producer blamed the collapse of an aging Soviet-era fuel tank in May, which disgorged 21,163 tonnes of diesel into the surrounding area, on melting permafrost and has disputed Rosprirodnadzor's calculation of the damages caused by the incident.

The spill was the first in a series of highly polluting incidents in the High North over the summer that have overshadowed Norilsk's multibillion-dollar efforts to reduce its notoriously heavy environmental footprint. Unscheduled inspections between August and September by Rosprirodnadzor of the facility responsible for the first spill identified 139 violations and revealed the site's equipment to be "worn out" and "obsolete."

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"In normal circumstances, you would expect a Russian court to slap a large company controlled by an influential oligarch on the wrist and let it walk away with a modest fine (10x, 20x ... lower than the originally assessed liability)," Voloshin said. "This case is different for all the above reasons. I don't exclude a settlement at a value lower than the US$2.1 billion penalty that the federal government is seeking to levy, but I don't think it will be an easy win for [Norilsk's CEO and largest shareholder] Vladimir Potanin."

Mines feature prominently among a range of infrastructure at risk from rising temperatures and permafrost degradation as climate change causes increasingly extreme weather in Russia's far-flung northern and eastern regions. Rapidly melting sea ice nevertheless makes the development of the strategically important Arctic ever more attractive to Moscow as it seeks to revive an ailing economy and increase its military presence around the North Pole.

As of Sept. 9, US$1 was equivalent to 75.37 Russian rubles.