After a remarkable four-hour meeting between the White House Administration and BP’s top executives, the oil giant has agreed to create a $20 billion fund to pay damage claims filed by thousands of fishermen and others economically harmed by the oil slick washing up on the shores of four Gulf states.
The meeting was scheduled to last two hours, but BP executives resisted committing to the $20 billion fund and both sides haggled over the details. According to the New York Daily News, sources said that Vice President Biden “leaned forward and bluntly informed [BP executives] they had no choice: If they didn’t do the right thing and put the cash in escrow, it would be done to them.”
As a multi-national company, BP’s assets and cash flow are inextricably tied to American soil and waters. Since the company can’t possibly skip town without paying, the federal government can maintain its leverage in holding BP responsible.
BP will create the fund over a four-year period, depositing $5 billion a year in escrow. The fund will be backed with collateral worth $20 billion in BP’s U.S. assets.
The phase-in is intended to soften the fiscal blow on BP, giving it some room to manage its cash flow. Administration officials likely agreed to spread the payments out because BP’s survival as a company is critical to the Gulf Coast’s recovery.
BP plans to reduce spending and sell $10 billion in assets over the next month to generate some of the money. But while the blow is a significant one to BP’s bottom line, the company earned a profit $17 billion last year alone.
Lawyer and mediator Kenneth Feinberg will administer the fund, likely from an office in New Orleans. Mr. Feinberg managed the fund for 9/11 victims, oversaw executive compensation for bailed-out banks, and has resolved claims for Agent Orange, asbestos, and other big legal issues.
Neither BP nor the federal government will manage the claims process. Claimants who are rejected may appeal to a three-person panel. BP will not be allowed to appeal claims unless they exceed $500,000 or unless Mr. Feinberg allows.
“It is important to emphasize this is not a cap,” Mr. Obama said. “The people of the Gulf have my commitment that BP will meet its obligations to them.”
Obama added that the $20 billion fund would not prohibit individuals, and states from pursuing claims in court. The fund, Obama said, also does not account for environmental damages.
Obama said that he pressed BP chariman Carl-Henric Svanberg to keep the people of the Gulf Coast in mind in future business dealings.
“I emphasized to the chairman,” Obama said, “that when he’s talking to shareholders, when he is in meetings in his boardroom, to keep in mind those individuals — that they are desperate, that some of them, if they don’t get relief quickly, may lose businesses that have been in their families for two or three generations.”
However, the $20 billion fund wasn’t heralded as a success by everyone on Capitol Hill. Texas Congressman Joe Barton apologized to the BP CEO personally, saying that it was “a tragedy in the first proportion that a private corporation can be subjected to what I would characterize as a shakedown.” Representative Michele Bachmann (R-Minn) played the socialist card and called the relief fund a “redistribution of wealth fund.” The Republican Study Committee, a group of 115 Conservative House Republicans, called the fund’s creation a “Chicago-style political shakedown.”
Congressman Jeff Miller (R-Fla) whose district is among the hardest hit by the oil spill, said that Barton’s remarks to Hayward were “out of touch with this tragedy” and added, “I feel his comments call into question his judgment and ability to serve in a leadership on the Energy and Commerce Committee.” Another Florida Congressman, Adam Putnam (R-Fla), said that Barton “owes the people of the Gulf Coast an apology, not the CEO of the company that caused this mess.”