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2010 MUMBAI OIL SPILL AN ENVIRONMENTAL CATASTROPHE

ISSUES RAISED AND OPTIMAL RESPONSE

OIL SPILL
An oil spill is the release of a liquid petroleum hydrocarbon into the environment, especially in marine areas, due to human activity, and is a form of pollution.

Sources of Oil Spill


Natural seepage from sea-bed Ship-borne a) Operational b) Contravention of Conventions and Legislations c) Accidental

Sources of Oil Spill

Natural seepage from sea-bed : Seepage from small shallow oil sources below the seabed contributes to leak of oil into the sea.

Sources of Oil Spill


Ship-borne a) Operational: Operational spills may occur due to the malfunction of oil water separators and other shipboard systems.

Sources of Oil Spill


Ship-borne b) Contravention of Conventions and Legislations: Occurs mainly when oil tankers in ballast discharge tank washings out on the open sea in the Arabian Sea or the Bay of Bengal.

Sources of Oil Spill


Ship-borne c) Accidental: These are the result of ship collisions, structural failure of cargo tanks, or ship groundings.

Environmental Impact of Oil Spills


Direct Effects : through physical and toxicological processes Indirect effects : through habitat impacts, food-chain disruption and alteration to their community

CASE STUDY: Gulf of Mexico

Oil Spill Outline:


Largest oil spill occurred in U.S waters Released 200 gallons into Gulf of Mexico Estimated cost of the oil spill : Cleanup + Natural resource Damage + CWA penalties = $ 41 billion approx !!! BP : The party held responsible for

Loss to wildlife
Economic loss

Extent of Damage

Natural resource loss

Loss to

World loss

Liability and Compensation Issues


Act governing the oil spill liability and compensation issues in U.S. : OIL POLLUTION ACT

1990
Under OPA, the costs of an oil spill distributed among the parties responsible and OSLTF Liability cap may or may not be there for responsible party. Oil Spill Liability Trust fund designed to cover costs above liability limits up to a per-incident cap of $ 1 billion
Liability is strict under OPA: Impacted parties need

Liability and compensation issues

Damages for which parties are held liable: natural resources, real or personal
property, revenues, profits and earning capacity and public services Liability cap for responsible parties, not there if caused by acts of gross negligence or willful misconduct and in case of violation of a federal safety, construction or operating requirement Financial Responsibility clause under OPA: vessels and offshore facilities maintain evidence of financial responsibility (e.g., insurance or financial statements

Liability and Compensation issues

Oil Spill Liability Trust Fund (OSLTF) ; financed by a 5-cent-per barrel tax on domestic and imported oil Per-incident cap decided for OSLTF is $1 billion Trust fund managed by the National Pollution Funds Center (NPFC). Has BP paid its liable amount under this regime? : YES BP has paid damage claims well above its liability limit of $75 million and outside the scope of its liable damages (e.g., human

Increase the liability limits Increase the required financial responsibility coverage Remove or raise the per-incident cap on the trust fund Increase the per-barrel oil tax Require industry to establish a pool of funds available to finance response actions, injured party

Potential Options considered by CONGRESS for Better Compensation

2010 MUMBAI OIL SPILL INCIDENT


On Saturday, 7 August 2010 at around 9:50 a.m. local time, MSC Chitra, which was outbound from South Mumbais Nava Sheva port, collided with the inbound MV Khalijia3.

Loss to Society
In the accident, there was a spillage of about 879 tonnes of oil.
The crude oil moved to different coastline of the Mumbai, Thane and Raigad district due to the tidal movement. The coastal sediment affected along the shoreline and its subparticles. The mangrove stretch along shore is also adversely affected.

Media Concern
It was witnessed that their entire mangrove turned black. The oil spill has affected the marine life in which many aquatic species habitat, which can result in marine ecological imbalance.

Estimation of Cost of Damages


Livelihood loss for 4 districts as fishing activities were suspended for 15 days : Rs 8.05 crores Loss in tourism : Rs.87,44,720. Fishery equipments were damaged costing Rs. 525.52 lakhs.

Who will pay ?


Chitra and Khalijia the two shipping companies bear foreign registration. Liability is covered by the International Convention on Civil Liability for Bunker Oil Pollution Damage of 2001.

Bunker Convention
Ship : Any seagoing vessel and seaborne craft. Bunker Oil : Any hydrocarbon mineral oil. Pollution damage : Any loss or damage caused outside the ship by contamination. Strict liability : Under Article 3 of the Convention the ship-owner will be strictly liable for pollution damage in most circumstances. Insurance cover : Risk coverage. Parties liable under the Convention :The Bunkers Convention imposes liability on the Ship owner defined as the owner, including the registered owner, bareboat charterer, manager and operation of the ship.

Position in India
India is not the signatory of Bunker Convention. So, the oil spill through addressed through the Convention on Limitation of Liability of Maritime Claims (LLMC), 1976. According to LLMC, the right of limitation is available to the charterer, manager and operator of the ship as well as the owner, and their aggregate liabilities are subject to a single liability limit.

India started with a strong framework in 1993 by setting up National Oil Spill Disaster Contingency Plan (NOSDCP) which specified:
Every Indian port should have a response system in place.

Regulatory Gaps in Indian Oil Spill Policy: CRITICAL ISSUES

Reality Check : Not a single port in the country can say it has a response system !!
11 major and 20 minor ports in India are yet to be equipped with the necessary infrastructure for a proper response to oil

Most striking feature of any policy addressing oil spills issue : the huge gap between official words and action !! Policies relating to marine pollution have either not been drafted or not been implemented in India, Required infrastructure to address the problem not in place

An important issue here is the involvement of the flag country -- the country where the ship or tanker is registered. In the Mumbai oil spill case, the Indian government could not even approach the flag country, Panama, as India is not a signatory to the International Convention on Civil Liability!! Most laws in the country address only ships carrying toxic waste and oil

Internal oil spills occurring regularly in old installations as a result of wear-andtear of machinery which go unnoticed !!

Indian laws concerning Indian waters are themselves very shallow.

The laws of the sea in our country are victims of political dyslexia and blame games

IN A NUTSHELL
With limited expertise on the governments side and a nexus among companies to evade the law and get a procedural decree in their favour, it is difficult in a country like India to get a true picture of what is actually happening.

SUGGESTED SOLUTIONS Proactive Industry


Effective Investment for setting up right kind of Infrastructure Adoption of better technology for estimating the true costs Better awareness of costs and damages involved with oil spill so that seriousness of the issue is recognized Better awareness of Clean up and Liability response

SUGGESTED SOLUTIONS
Clear regulatory regime involving stricter liability clause Setting up of liability caps Stricter Insurance cover regulations for ensuring timely compensation to affected parties Fund reserve can be built from the duties received by government from oil companies for transportation to cover up costs associated with oil spill
Effective mechanism for recognizing responsible parties and imposition of

Economics of an Oil Spill


Deals with designing optimal penalty for environmental harms Optimal penalty literature begins with Gary Beckers (1968) economic analysis of crime
Main result of the paper : Deterrence may be enhanced by raising the penalty, increasing monitoring activities to raise the likelihood that the offender will be caught, or changing legal rules to increase the probability of conviction. Such mechanism leads to an efficient level of crime, whereby the marginal cost of

No penalty for spilling oil firms that produce or transport oil would take into account only their private costs of oil spill This ignores the external harm caused by oil spills: namely the damage to third parties (fisheries, tourism, etc.) and to natural resources To change the private cost-benefit analysis into a public one requires imposing a penalty equal to the harm caused by the spill, both the costs of

Optimal level of cleanup :


oil should be cleaned up as long as the marginal cost of cleanup is less than the marginal damages caused by an additional gallon of oil spilled

VARIOUS POLICIES: Strict liability laws VS negligence standards:


Efficient since costs of establishing negligence avoided and strict liability standard has a built-in incentive for firms to invest in better prevention technologies.

Liability limits:
Inefficient policy since it would lead to inadequate

Insurance cover:
Creates moral hazard problem in case of inclusion of negligence or rule violations under insurance policy while deciding the claims

Role of firms reputation:


Several studies looking at bad environmental news, such as oil or chemical spills , have demonstrated a negative stock price effect and thus provides adequate incentives to firm

Criminal laws:
a criminal label on behavior is a signal of moral outrage in the community causing the liable parties to take cautious efforts

CONCLUSION
Dealing with an environmental problem like oil spill is not an easy task. And countries must ensure that they are not only equipped with the technologies and facilities to deal with the aftermath of the same but also have the requisite regulatory and technological framework in place to prevent the oil spill incident from occurring in the first case since the costs associated with the same are magnificent and manifold !!!

THANK YOU

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