Credit where credit is due. The Obama Administration managed to get BP to commit at least $20 billion to an independently administered escrow fund to pay economic damages arising from the BP oil disaster.
The few details released so far suggest some worthwhile features.
– BP’s commitment of $20 billion will be funded in installments of at least $5 billion this year and each of the next three years. That provides a continuing fund of money for damages that are likely to last over several years.
– With the expectation that total damages could exceed that amount, he President emphasized that the $20 billion is not a cap. He assured Gulf residents that all their claims will be covered.
– Given pressure from the Administration and Congress, BP will suspend dividends for the rest of 2010; with annual dividends at about $10 billion, that’s a major signal to markets that BP is serious about meeting this commitment.
– The escrow fund will be have credible independent oversight from Kenneth Feinberg, who oversaw the 9/11 victims compensation fund. If the fund is truly independently administered, it negates a major frustration claimants would have in facing BP stalling tactics.
– BP will also commit $100 million to compensate oil workers affected by the moratorium on new deepwater permits. The Administration has demanded this against doubts about its legal basis. But in the context of a $20 billion commitment, allocating another $100 million for something the Administration wanted was not a big deal. That $100 million essentially buys the Administration a partial defense against the Gulf Coast Congressmen who wanted the moratorium lifted, because, they argued, it was hurting Gulf jobs.
– And BP’s Chairman emerged from his meeting with Obama to apologize to the American people, promising to meet the terms of the agreement. From the New York Times:
After the president’s remarks, the chairman of BP, Carl-Henric Svanberg, announced the dividend suspension. Mr. Svanberg apologized “to the American people” for the disaster and said that BP would “look after the people affected, and we will repair the damage to this region and the economy.”
The White House was probably exchanging high fives while watching that.
It’s been frustrating to watch the Administration ducking governmental responsibility while leaving critical public health, safety and environmental decisions in BP’s hands. But there was also a tug of war to ensure BP remained financial liable for all damages. But nailing down a basic agreement on how damages get paid, the Administration is better positioned to assert more operational control over cleanup and restoration efforts. At least that’s my hope.
Oh, the "small people" comment? On PBS News Hour, BP executive Bob Dudley explained that for BP’s non-English Chair, Mr. Svanberg, "English is a second language." So "small people" wasn’t a reference to a scene from Wizard of Oz but instead probably meant "small businesses." Uh huh. So apparently we won’t need additional agreements for medium and large people.
Naked Capitalism passes on more skeptical views: basically, the concern is the immediate damages will be much larger than $5 billion/year; so this accommodates BP’s cash concerns, but not the Gulf’s, assuming the $5 billion/year is limiting in the short run.
UK Guardian, BP to pay out $20bn over oil spill after Obama meeting