Thursday, May 5, 2016

Vale And BHP Rocked By $44 Billion Brasil Dam Lawsuit


Vale and BHP Billiton rocked by $44bn Brazil dam lawsuit

Lawyers question whether prosecutors will succeed with full claim over last year’s disaster
(FILES) This file photo taken on November 6, 2015 shows a general view where a dam burst in the village of Bento Rodrigues near Mariana in the southeastern Brazilian state of Minas Gerais. Shares in Anglo-Australian mining giant BHP Billiton plummeted seven percent in Sydney on May 4, 2016, after it revealed Brazil has filed a 43 billion USD lawsuit against it and co-owner Vale over the Samarco mine disaster. A dam at the mine they co-own broke on November 5 last year, spewing a deadly wall of mud and water that swamped a village, killed at least 17 and polluted a huge swath of river basin. / AFP PHOTO / Douglas MagnoDOUGLAS MAGNO/AFP/Getty Images
The village of Bento Rodrigues after the Samarco dam collapse © AFP
It is enough money to pay 14m Brazilians the minimum wage for a whole year.
Brazilian prosecutors threw investors into a panic on Wednesday after demanding R$155bn (US$44bn) from mining companies Vale and BHP Billiton for the collapse of a dam at their Samarco joint venture last year that ranked as the country’s worst environmental disaster and killed at least 17 people.
The 359-page civil lawsuit filed by federal prosecutors on Monday and announced late on Tuesday came as a shock to many investors, who had hoped that a settlementsigned with the government in March worth R$10bn would draw a line under the bulk of claims relating to the disaster.
Shares in Vale and BHP, which had talked about restarting operations at their Samarco iron ore mine in the south-eastern state of Minas Gerais as early as this year, both dropped about 6 per cent in trading on Wednesday.
While lawyers say it is highly unlikely any judge would enforce such a large claim against Vale and BHP, the Brazilian prosecutors’ lawsuit is poised to be the start of a long and messy battle ahead over the cost of the dam’s collapse.
“It was an unprecedented disaster in Brazil but if they are forced to pay the whole amount it would bankrupt the companies,” says Marina Coelho, a professor specialising in compliance issues at São Paulo’s Insper business school.
In the case of Vale, the R$155bn claim is equivalent to twice the company’s market value.
“The damage has already been done but the claim itself would cause even more damage,” says Ms Coelho, who adds that the “absurd” claim would cause mass job losses and even be counter-productive because the two companies would not be around to carry out the clean-up operation.
Brazil’s public prosecutors, who have played an ever more active role after their independence was guaranteed by the country’s 1988 constitution, often request huge payouts in environmental cases that are then settled for a fraction of the original amount.
UBS analysts and others have pointed to the 2011 oil spill off the coast of Rio de Janeiro that prompted prosecutors to claim $11bn in damages from Chevron and its drilling partner Transocean — a case that was eventually settled for only $42m.
However, Brazilian lawyers say the Samarco dam collapse in November is a far more complicated case, given that entire communities were destroyed and more than 700 people were left homeless, sparking anger nationwide.
“How do you calculate the value of a 17th-century church or the value of a whole city that was destroyed … many of these things do not have a price,” says Carlos Alberto Maluf Sanseverino, president of the Brazilian bar association’s commission for infrastructure, logistics and sustainable development in São Paulo.
He says the case would depend on ongoing investigations into the cause of the dam’s collapse, but could drag on for as long as six to eight years if the companies fight the claim all the way to Brazil’s supreme court.
In a statement on Tuesday, prosecutors said the R$155bn suit was based on the clean-up costs of the BP oil spill in the Gulf of Mexico in 2010 — an incident they argued was comparable to the Samarco disaster.
“It does not seem credible, neither technically nor morally, that the value of the human, cultural and physical environment in Brazil should be worth less than in other countries,” added the prosecutors.
The comments are causing outrage among some environmental lawyers in Brazil, who say that the Gulf of Mexico and Samarco disasters have little in common, and that the R$155bn lawsuit gives their profession a bad name. “Environmental lawyers in Brazil were always thought of as radicals and we had finally begun to gain some respect,” says Marcelo Buzaglo Dantas, an environmental lawyer in Florianópolis.
However, other lawyers say the settlement signed by the government in March was also too hasty and motivated in part by the political aspirations of President Dilma Rousseff, Brazil’s embattled president, as she tried to combat criticisms for not immediately visiting the site of the Samarco disaster.
“She was more worried about other things at the time, such as keeping her job,” says Mr Buzaglo Dantas.