Vale and BHP Billiton could face billion-dollar fines in Brazil from dam bursts

The accident took place in Mariana, a town in the Minas Gerais state, on 5 November. Since then, 34 million cubic metres of mud mixed with industrial waste have flowed into the Rio Doce river and its effluents reaching all the way to the Atlantic ocean. The dams belong to Samarco, a company jointly owned by the two multinationals BHP Billiton and Vale. According to Ibama, Brazil's environmental agency, 663 km of riverbeds were affected by the polluted mud that destroyed almost 1,500 hectares of land and buried 201 buildings. A whole district of Mariana has been hit, with 13 confirmed deaths and six people still missing. Many fish have died in the rivers, and there is concern about protected environment areas on the coast of Brazil. Fishing and agricultural businesses are struggling badly in the region. Hundreds of families have been relocated to hotels and have lost all their belongings. Several towns in the states of Minas Gerais and Espirito Santos were deprived of drinking water for days after the event. Samarco has claimed that the mud liberated from the dams is not toxic, and will eventually settle on riverbeds and the bottom of the ocean. But activists and local authorities have denounced abnormal levels of toxic substances in river water affected by the waste. This week, Brazil's federal attorney office announced that it is requesting courts to order the two companies, plus Samarco, to immediately make financial guaranties worth R$2bn, or around US$520m, to pay for the damage caused by the disaster. Furthermore, it requested that the companies make payments of R$2bn a year over a decade-totalling more than R$20bn or US$5.2bn-to compensate the families affected by the disaster and pay for environmental damages.hideThe final bill for Samarco, however, could be much higher than that. A number of state and federal level agencies are applying fines and demanding compensatory payments for the damage caused. If Samarco does not have the financial capacity to meet its fines, the government wants Vale and BHP Billiton to take over the liability. The two companies have already announced the creation of a voluntary fund for the rescue and recuperation of the Rio Doce river basin. Both multinationals have seen their share prices drop to ten-year lows since the accident. They have firmly denied, however, any legal responsibility for the catastrophe, claiming that Samarco is an independently managed outfit. Vale and BHP Billiton each hold a 50% share of the company and appoint all its board members. "Samarco is a 50%-50% joint venture," said Clovis Torres, Vale's General Counsel and Chief Compliance Officer, during an interview in New York on 1 December. "If the joint responsibility of shareholders is established, I believe we will share the costs." The Brazilian media and authorities have been relentless in their pursuit of culprits. On Tuesday, newspapers reported that the government's public prosecution office is already considering legal measures to transfer responsibility for the punitive payments to Vale and BHP Billiton if Samarco goes bankrupt. During the New York interview, Vale's CEO, Murillo Ferreira, pointed out that it is still too early to determine who is at fault for the incident. But the Brazilian media has unearthed information that points to a number of risk management flaws in the construction of industrial waste dams in Brazil and a lack of proper supervision of such facilities by government authorities. Investigations also reveal that Samarco did not buy environmental liability insurance coverage, and that its traditional liability policies do not have high enough limits to cover the expected environmental losses. According to Brazilian congress members who are investigating the case, Samarco's insurance coverages reach US$1bn, although it is not clear what losses are covered by the policies. The accident has also highlighted the fact that Brazil does not have in place legislation to mandate mining companies to purchase insurance coverages for environmental and civil liabilities. The Brazilian congress has killed at least four bills, allegedly pressured by mining groups, that aimed at imposing such rules. The incident suggests risk management deficiencies at the Samarco operation. The company is accused of not having an efficient crisis management system in place to warn neighbouring communities about the disaster and react adequately to the event.

Vale and BHP Billiton could face billion-dollar fines in Brazil from dam bursts

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