(Editorial Note: Additions and minor alterations were made on Friday morning, June 18)
Early Wednesday morning the BBC headlined, “President Obama and BP Chiefs to discuss spill”. Meanwhile CNN was leading with, “Obama, BP set for Gulf oil showdown”. About an hour before the meeting was scheduled to begin, the BBC was running the same story but shifted its title to “BP executives prepared for grilling”.
Which did it turn out to be: discussion, grilling, or showdown? More importantly, what does the meeting mean for future public-private partnerships to prevent, mitigate, respond to, and recover from disaster?
By now you know the basics: The White House meeting began shortly after 10:00 AM. Following twenty minutes with the President, Vice President Biden, Secretary Napolitano, the Attorney-General and other senior officials, the BP and US government teams spent another three-plus hours in negotiations.
Despite pre-existing agreements-in-principle, the details took longer to finalize than anticipated. There were some “sticking points” according to a variety of insiders. After agreement was reached, the President and the BP chairman had a 25 minute private conversation. The President had been expected to deliver some after-action comments at 12:15. He appeared shortly before 2:30.
The major take-away from the talks, according to the New York Times, is “a $20 billion fund to pay claims for the worst oil spill in American history. The fund will be independently run by Kenneth Feinberg, the mediator who oversaw the 9/11 victims compensation fund…” BP will also suspend dividend payments for the remainder of 2010.
In the National Security Strategy — released two weeks before the President began referring to the oil spill as “an assault on our shores” — considerable priority is given to public-private partnerships. Here’s the NSS discussion:
Improve Resilience Through Increased Public-Private Partnerships: When incidents occur, we must show resilience by maintaining critical operations and functions, returning to our normal life, and learning from disasters so that their lessons can be translated into pragmatic changes when necessary. The private sector, which owns and operates most of the nation’s critical infrastructure, plays a vital role in preparing for and recovering from disasters. We must, therefore, strengthen public-private partnerships by developing incentives for government and the private sector to design structures and systems that can withstand disruptions and mitigate associated consequences, ensure redundant systems where necessary to maintain the ability to operate, decentralize critical operations to reduce our vulnerability to single points of disruption, develop and test continuity plans to ensure the ability to restore critical capabilities, and invest in improvements and maintenance of existing infrastructure.
How well has this strategy survived its encounter with the fog and friction of an actual crisis? Here’s most of how the President reported out on his meeting with the BP executive team. (The White House provides a full text.)
I just concluded a constructive meeting with BP’s chairman, Carl-Henric Svanberg, and I raised two issues at the meeting. First was the containment of the oil that is still spewing into the Gulf. As I mentioned last night, my administration has directed BP to mobilize additional equipment and technology. In the coming days and weeks, these efforts should capture up to 90% of the oil leaking out of the well…
The second topic revolved around the issue of claims. As I’ve traveled across the Gulf Coast, I’ve heard growing frustration over the pace at which claims have been paid. I’ve also heard concerns about whether BP will make resources available to cover legitimate claims resulting from this disaster. So, this discussion today was essential.
Currently, under federal law, there is a $75 million cap on how much oil companies could under certain circumstances be required to pay for economic damages resulting from spills such as this.
It must be tempting to bash BP. Significant personal frustration is understandable. There would probably be some political benefits to amplify the blame-game. Instead the President focused mostly on issues of “structures and systems” (see NSS). Someone on the BP Board must have raised the possibility of taking cover behind the existing law’s liability cap. The decision — announced weeks ago — to not do so facilitates public-private collaboration.
That amount would clearly be insufficient. That is why I am pleased to announce that BP has agreed to set aside $20 billion to pay claims for damages resulting from this spill. This $20 billion amount will provide substantial assurance that the claims people and businesses have will be honored. And it is not a cap. The people of the Gulf have my commitment that BP will meet its obligations to them.
BP has publicly pledged to make good on the claims it owes to people in the Gulf. And so, the agreement we reached will set up the financial and legal framework in which to do it.
Another important element is that this $20 billion will not be controlled by either BP or by the government. It will be put in an escrow account, administered by an impartial, independent third party.
In his Tuesday night speech the President said, “Tomorrow, I will meet with the chairman of BP and inform him that he is to set aside whatever resources are required to compensate the workers and business owners who have been harmed as a result of his company’s recklessness.” The tone on Wednesday was less unilateral, less confrontational, and more collaborative. BP representatives were apologetic, both in public and in private meetings. There seemed to be an authentic concern on both sides to be constructive.
If you or your business has suffered an economic loss as a result of this spill, you will be eligible to file a claim for part of this $20 billion. This fund will not supersede individuals’ or states’ rights to present claims in court. BP will also continue to be liable for the environmental disaster it caused, and we will continue to work to make sure they address it. Additionally, BP voluntarily agreed to establish a $100 million fund to compensate unemployed oil rig workers affected by the closure of other deep water rigs.
We have mutually agreed that Ken Feinberg will run the independent claims process we are putting in place, and there will be a three-person panel to adjudicate claims that are turned down. Every effort will be made to expedite claims. Ken has long experience in such matters, including running the fund that compensated victims of 9/11. And I am confident he will ensure that claims are administered as quickly, fairly, and transparently as possible.
It is not entirely clear if the federal government has the legal authority to require BP to compensate unemployed oil rig workers and cover other indirect costs of the spill. Establishment of the independent claims process could also have been resisted (maybe it was), but instead BP agreed to cooperate. For BP to agree to this and not insist on liability protection, or immunity, or another specific in exchange for paying claims via the independent process is significant. Whether this private sector role was proffered or extracted does not change its result. (Thursday morning the NYT is projecting BP will be assessed civil fines of $280 million per day.)
BP’s liabilities for this spill are significant. They acknowledge that fact. And we will continue to hold BP and all other responsible parties accountable. I’m absolutely confident BP will be able to meet its obligations to the Gulf Coast and to the American people. BP is a strong and viable company and it is in all our interests that it remains so. This is about accountability. At the end of the day, that’s what every American wants and expects.
The structure we are establishing today is an important step toward making the people of the Gulf Coast whole again, but it will not turn things around overnight. And I want all Americans to know that I will continue to fight each and every day until the oil is contained, until businesses recover, and until the Gulf Coast bounces back from this tragedy – as I know it will.
Following the President’s remarks, the BP executive team made a statement outside the White House. On Bloomberg television as the Chairman of the Board spoke, the screen showed the real-time movement of BP’s stock price. It was going up. Wednesday morning the stock opened at $29.90 per share. It hit its high of $33.00 just after the President’s and Chairman’s comments. It closed at $31.85. (Thursday morning BP is up 7 percent on the London market.) But Thursday’s day-long Congressional attack on BP’s CEO no doubt contributed to further declines in the stock price.
In his remarks outside the White House, BP Chairman Svanberg asserted that BP and the White House are “fully aligned in our interests in closing this well, cleaning the beaches, and caring for those effected.”
Whatever alignment exists will be tough to preserve, but the public-private strategy has survived. The incentive (see NSS) motivating this particular collaboration consists mosly of shared desperation. It would be more helpful if the example of this disaster — and this troubled public-private partnership — would spur private enterprises and local, state, and federal agencies to proactively engage with the goal set out in the National Security Strategy… well before there is cause for desperation.
For further consideration
Wednesday night interview with BP Chairman (Financial Times)
Oil spill makes unlikely partners of BP and the federal government (Washington Post)
Bring on the Barack and Tony show(Steven Pearlstein, WAPO columnist)
The President’s Animosities (Daniel Henninger, WSJ columnist… with a take completely opposite of mine above)
Obama’s shift from populist to geek (Edward Luce in the Financial Times)
The BP Precedent (Friday WSJ editorial attacking the $20 billion ICF)
Obama’s twist of BP’s arm stirs debate (New York Times)
June 21 UPDATE: BP softens political fallout (Wall Street Journal)
Prospectivity of the Ultra-Deepwater Gulf of Mexico by Roger N. Anderson and Albert Boulanger