FINANCIAL CONSEQUENCES OF OIL SPILLS
Oil Pollution Claims and Compensation Workshop
Haifa, Israel
17-19 January 2006
Outline:
Clean-up and preventive measures
Social, political and economic consequences
Environmental impact
Costs of oil spills
Clean-up and preventive measures
Salvage operations
Clean-up at sea
Shoreline clean-up
Disposal of oil and oily wastes
Concept of reasonableness
Preventive measures - clean-up operations at sea
Social consequences of oil spills
Closure of amenity beaches to the public
Closure of roads to traffic
Media pollution
Shortage of marine products due to fishing bans
Human health concerns
Impact of oil on fishing and
mariculture
Damage to fishing gear and consequential
economic losses
Effects on fishing and fishing bans
Contamination of wild and captive stocks
Supply shortages may affect related industries
Market effects
DAMAGE TO FISH TANKS
Subsistence (artisanal) fishing
Unlikely to have supporting documentation
Likely to be in need of urgent compensation
Interim payments in hardship cases
Impact on coastal industries
Disruption of port operations by clean-up
Contamination of ships’ hulls
Entrainment of oil in seawater intakes of power
stations, refineries etc
Salt production
Shipyards
WHARF DAMAGE
DAMAGE TO A FISHING PORT
DAMAGE TO A MARINA
Impact on tourism
Negative media reporting can lead to reduction in
number of tourists
Economic losses for hotels, campsites, restaurants
that rely on tourists
Erika incident in France resulted in 3 500 tourismrelated claims totalling £77 million
ENVIRONMENTAL DAMAGE
Oil spills do not cause permanent damage and
rarely cause long-term damage to the marine and
coastal environments
Birds are vulnerable and cleaning/rehabilitation not
very effective
Marshes and mangroves are sensitive to oil, but
are more susceptible to damage from clean-up
Corals not susceptible to oil provided they remain
submerged
18 Months
22 Months
Factors affecting costs
Type of oil
Heavy fuel oil spills more expensive than crude oil
spills
Quantity of oil spilled
Location of the incident
Level of preparedness to combat pollution
Media
Braer
Braer -- 1993
1993
Braer incident, Shetland Islands, UK
84 000 tonnes of Gulfaks north sea crude oil spilled
Virtually no clean-up necessary because oil
dispersed naturally
Dispersed oil had major impact on fisheries and
mariculture
Cultivated salmon heavily contaminated & had to
be destroyed
Long-term fishing bans imposed
Fishery & mariculture claims totalled £38 million
Costs of recent heavy fuel oil spills
Nakhodka (Japan, 1997) £130 million
Erika (France, 1999) > £113 million
Prestige (Spain, France, Portugal & UK) £650
million (estimated)
Prestige incident, Spain November 2002
Prestige claims situation
• In Spain
• 826 claims submitted for a total of €842
million
• 530 claims have been assessed
• In France
• 458 claims submitted for a total of €107
million
• 358 claims have been assessed
CLAIMS FOR COSTS OF CLEAN-UP AND
PREVENTIVE MEASURES
Oil Pollution Claims and Compensation Workshop
Haifa, Israel
17 – 19 January 2006
CLAIMS FOR THE COSTS OF CLEAN-UP
AND PREVENTIVE MEASURES
General admissibility criteria
Specific admissibility criteria
Common problems
Role of experts
Salvage and preventive measures
Presentation of claims
Assessment of claims
COSTS RECOVERABLE IN RESPECT
OF REASONABLE MEASURES TO:
Combat oil at sea
Protect sensitive resources
Clean shorelines and coastal installations
Dispose collected oil and oily waste
Prevent pollution damage through salvage
operations
COMPENSATE COSTS OF:
Personnel and hire/purchase of equipment
and materials
Additional costs (overtime)
Proportion of fixed costs of personnel from
public bodies
Loss/damage caused by clean-up
operations
GENERAL ADMISSIBILITY
CRITERIA:
Expense must actually be incurred
Response measures should be reasonable
and justifiable
Expense must be due directly to the
contamination
SPECIFIC ADMISSIBILITY CRITERIA:
Response measures should have a
reasonable chance of being effective based
on information available at the time decision
taken
Costs should be reasonable
COMMON PROBLEMS:
Aerial surveillance
Vessel surveillance
Shoreline patrols
COMMON PROBLEMS:
Dispersants:
Aerial vs. vessel application
Oil viscosity
Monitoring and evaluation of effectiveness
COMMON PROBLEMS:
Oil recovery at sea:
Generally only effective during early stages
Requires good command and control
Cost benefit analysis (net environmental
benefit)
COMMON PROBLEMS:
Shoreline clean-up:
Volume of oil vs. volume of waste recovered
Manual vs. mechanical clean-up
How clean is clean?
Net environmental benefit
COMMON PROBLEMS:
Costs:
Public vs. private sector
Pre-spill contracts vs. spot market
Daily/hourly rates
Stand by rates
COMMON PROBLEMS:
Cost recovery:
Poor record keeping
No link between operations and expenditure
No checking of invoices
ROLE OF EXPERTS
1992 Fund and shipowners’ insurer jointly appoint
experts
ITOPF and local surveyors/experts
Experts role on-site is advisory
Experts give objective, technical advice on most
appropriate response
Experts try to ensure response compatible with Fund
admissibility criteria
Experts assist Fund and insurer assess claims for
compensation
SALVAGE AND PREVENTIVE
MEASURES
Salvage operations considered ‘preventive measures’
if primary purpose is to prevent pollution damage
If salvage operations have dual purpose of salvage
and preventive measures, costs are apportioned
Compensation limited to costs and profit i.e. no
‘salvage award’
EVIDENCE GATHERING
If major pollution incident, little need for evidence
linking source to contamination
Illegal discharges sometimes occur following major
incidents
1992 Fund pays compensation for pollution damage
from ‘mystery spills’ provided it is demonstrated that
oil source was a ‘ship’ as defined in Convention i.e.
tanker
If pollutant is crude oil that could not have originated
from offshore platform, pipeline or shore installation QED
PRESENTATION OF CLAIMS
General guideline:
1992 Fund Claims Manual
Early notification to Fund to enable experts to attend
on-site
Key to successful recovery is good record keeping
linking action to expenditure
PRESENTATION OF CLAIMS
Invoices insufficient by themselves
Narrative describing response activities and linking
these with expense
Spreadsheets very helpful
Cost items should be supported by invoices,
receipts, worksheets, wages records etc.
PRESENTATION OF CLAIMS
Record keeping:
What?
Why?
Where?
When?
By who?
What with?
How much?
• Maps
• Photographs
PRESENTATION OF CLAIMS
Documentation:
Response organisation/contractors – daily log of
activities
Response vessels – extracts from ships’ deck log books
Beachmasters – daily reports
• number of personnel,
• type and amounts of equipment/materials
• type and length of shoreline cleaned
Purchase orders (invoices)
Example of Supporting
Documentation
Prepared by: XY Ports Corp.
For Incident:
Simuspill 2
Date
Site:
Sundown Beach
Sort Code
Boom
Boom
Skimmer
Skimmer
Crane
other Equip.
Sorbent
Plant
Labour
Labour
Transport
Helicopter
Accomm.
Misc
Misc
5.8.99
Organisation
Ports Services
Ports Services
AMSA
SPC
Crane + Hire Inc.
Equipment/ Personnel Charge Rate Charge Method
Unit
Slickbar GP
Absorbent
Marco
Desmi 250
14 Tonne Crane
540
48
1
1
$2,700.00
$1,536.00
$4,000.00
$1,000.00
$4,000.00
19.25
107
$1,155.00
$4,815.00
$5
$32.00
$4,000.00
$1,000.00
per metre
per metre
per day
per day
Cost
Estimate
per pair/bale/
Water Police
Ports Services
Johnsons
Sydney Heli
Manager
Admin Staff
Semitrailer 16T
Helicopter + Pilot
SPC
SPC
Expenditure
Taronga Zoo
$60.00
$45.00
per hour
per hour
Est Invoice
$4,000.00
Est Invoice
$7,530.00
PRESENTATION OF CLAIMS
Cost tracking:
Transition from emergency phase (at sea
response) to project management (shoreline
clean-up)
planning
operations
finance
archives
EQUIPMENT RATES
Amortise capital cost of equipment over
useful working life
Storage and maintenance costs
Profit element if commercial contractor
Expressed as daily or hourly rate
Standby rate 50% of in use rate
EQUIPMENT RATES
Typical in use life expectancies:
Offshore booms
90 days
Coastal booms
30 days
Skimmers
180 days
Power packs
180 days
Daily rate for a skimmer
=
Capital costs + maintenance + storage costs
Life Expectancy
VESSEL RATES
Amortisation of capital cost over useful
working life
or
SCOPIC rates
Determination of Hire Rates for
Oil Spill Response Vessel (OSRV)
Name
GT
DWT
Engine Horsepower
Year Built
Cost of Vessel
GUIDE
Response 1
650
1500
2500
1998
USD 4,500,000.00
15 year lifespan
Insurance
Classification Surveys
Repairs & Dockings
Superintendency
Fuel Costs at an average of 5000 litres per month at USD 0.30 per litre
Victualling and Consumables at USD 2 700 per month
Manning Costs
Master
Chief Officer
Chief Engineer
Seaman
Oiler
Deck hand
$1,500.00
$1,000.00
$1,250.00
$800.00
$800.00
$600.00
per
per
per
per
per
per
Total
USD 694,400.00 /
Cost per hour (based on 10 hour per day)
Total
$18,000.00
$12,000.00
$15,000.00
$9,600.00
$9,600.00
$7,200.00
$694,400.00
month
month
month
month
month
month
Number of working days a year
minus
Holidays
minus
Weekends
minus
Repairs
Cost per day
Sub-Total
$300,000.00
$60,000.00
$5,000.00
$200,000.00
$7,600.00
$18,000.00
$32,400.00
$623,000.00
222
365
13
110
20
222
days
days
days
days
days
USD 3,127.93 per day
USD 312.79 per hour
Calculation of vessel rates
SCOPIC 2000 – includes crew, but not consumables or specialised
response equipment
For each bhp up to 500 bhp US$3.0/bhp
501 – 5000 bhp
US$2.0/bhp
5001 – 10 000 bhp
US$1.5/bhp
10001 – 20 000 bhp
US$1.0/bhp
For each bhp over 20 000
bhp
US$0.5/bhp
For commercial
organisations
+25% profit
PRESENTATION OF CLAIMS
Fixed costs
Public sector personnel involved in response
Expenditure that would have been incurred
without an incident e.g. salaries
•
Must correspond to actual period of the response
•
Must not include remote overhead charges
•
Only applies to personnel directly involved in
response e.g. clean-up crews, supervisors and
command and control staff
•
Personnel involved in documenting claims
CLAIMS ASSESSMENT
Assessment carried out by local experts
with advice from ITOPF
Fund carries out interim assessments in
order to make rapid payments
Assessments negotiable provided
negotiations based on Fund criteria i.e
no horse trading!
CLAIMS FOR ENVIRONMENTAL DAMAGE AND
COSTS OF POST – SPILL STUDIES
Oil Pollution Claims and Compensation Workshop
Haifa, Israel
17 – 19 January 2006
ENVIRONMENTAL DAMAGE AND POST
SPILL STUDIES
Outline:
Effects of oil on marine and coastal environments
Admissible studies
Admissible claims
Admissibility criteria
ENVIRONMENTAL DAMAGE
Oil spills do not cause permanent damage and rarely
cause long-term damage to the marine and coastal
environments
Birds are vulnerable and cleaning/rehabilitation not
very effective
Marshes and mangroves are sensitive to oil, but are
more susceptible to damage from clean-up
Corals not susceptible to oil provided they remain
submerged
ENVIRONMENTAL DAMAGE
Admissible claims
Economic loss which can be quantified in monetary
terms
Costs of reasonable measures to reinstate
contaminated environment
No compensation paid for claims based upon an
abstract quantification of damage using theoretical
models
No compensation for punitive damages
ENVIRONMENTAL DAMAGE
Economic loss example: Lake Maracaibo, 1998
Downturn in shrimp catches in lake one year after
spill
No contemporaneous evidence linking loss to
contamination
Oil had passed through shrimp spawning grounds
Low oil concentrations are known to affect
reproduction, feeding and survival of shrimps
No other factors identified
Fund concluded that oil was contributory factor
ENVIRONMENTAL DAMAGE
Reinstatement measures examples:
Clean-up
Replanting of mangrove saplings
Sand replacement following clean-up
Replanting of marsh plants
ENVIRONMENTAL DAMAGE
Reinstatement measures:
Aim to return damaged site to same ecological state
absent the spill
Recovery = re-establishment of a biological
community in which organisms characteristic of that
community at the time of the incident are present and
functioning normally
Measures taken at some distance from, but in the
vicinity of the damaged area may be acceptable
provided it enhances recovery of components of
environment
ENVIRONMENTAL DAMAGE
Reinstatement measure nearby, example:
Two offshore islands were nesting habitats for rare
seabird
One island became infested with rats, which
destroyed habit thereby reducing numbers of sea
birds
Other island became polluted with oil thereby
threatening sea bird population
Reinstatement involved eradicating rats on unpolluted
island restoring habit for the birds
ENVIRONMENTAL DAMAGE
Reinstatement measure – admissibility criteria:
Measures should accelerate natural recover process
Measures should prevent further damage
Measures should not degrade other habitats or
adversely effect other natural economic resources
Measures should be technically feasible
Costs should not be disproportionate to extent and
duration of damage and the likely benefits
POST SPILL STUDIES
Studies required to establish nature and extent of
environmental damage and whether reinstatement is
necessary and feasible
Studies not required after all oil spills
Fund may contribute to the cost of studies provided
they relate to pollution damage
Studies should be carried out with scientific rigour
and objectivity
Studies should not repeat work already done
POST SPILL STUDIES
Establish committee to design and co-ordinate
studies
Scale of studies should be in proportion to extent of
contamination and predictable effects
Fund should be invited to participate in
considerations as to whether study is necessary,
establishing terms of reference, selecting experts and
techniques to be followed
POST SPILL STUDIES
Example:
Study of environmental threat posed by a cargo of
bitumen in a sunken tanker
Study showed that bitumen posed no significant
threat to marine and coastal resources
As a result of studies, the decision was taken not to
remove the cargo
POST SPILL STUDIES
Example:
Study of the impact of the oil on mangroves
Condition of the affected trees were monitored over a
period of one year.
Although the prop roots of the trees were oiled the
trees survived and no reinstatement measures were
necessary
POST SPILL STUDIES
Example:
Oil became trapped in intertidal mud sediments
Affected area was an important clam fishery
Although clams survived they acquired an oily tests
which made them unsaleable
Monitoring programmer established involving
analyses of oil in mud and clams and regular taint
testing
After a period of six months oil concentrations in mud
and clams restored to background levels and fishing
re-opened
CLAIMS IN THE FISHERY AND MARICULTURE
SECTORS
Oil Pollution Claims and Compensation Workshop
Haifa, Israel
17-19 January 2006
Outline:
Impact of oil on fisheries, mariculture and
processing
Fund criteria on admissibility
Business models
Subsistence fishing
Claims assessment
Impact of oil on fisheries
Contaminated fishing gear
Fishing bans to prevent contamination of gear
and catches
Fishing bans to protect human health
(temporary contamination)
Damage to stocks unlikely
Loss of market confidence
Impact of oil on mariculture
Contamination of onshore and offshore
facilities (fish cages, shellfish rafts, onshore
tanks and ponds)
Contamination of stocks (tainting, mortality)
Harvesting bans
Loss of market confidence
Impact of oil on processing
Contamination of plant
Reduction in supply
Reduction in demand
Contamination of fisheries and
mariculture produce
Fishing bans should be justified
Presence of oil in vicinity of fishing grounds or
mariculture facilities
Contamination of stocks demonstrated by
chemical analysis or taste testing
Destruction of mariculture produce
Factors to be considered:
Whether produce contaminated
Likelihood that contamination would
disappear before normal harvesting time
Whether retention of produce affects further
production
Likelihood of produce being marketable at
normal harvesting time
Claim presentation
Nature of the loss and proof linking loss to
contamination
Comparative earnings in previous periods
and during period of loss e.g. accounts, tax
returns, sales invoice and receipts
Method of assessment of the loss
Savings
Assessment of loss of earnings
Month
Earnings in
year n – 3
Earnings in
year n – 2
Evolution
±%
Earnings in
year n – 1
Evolution
±%
Theoretical
earnings year n
Actual
earnings
January
February
March
April
May
June
July
August
September
October
November
December
Total
Sub-total for
period of
the loss
Loss of profit = loss of earnings - savings in variable costs (e.g. fuel, ice, transport packaging ) + cost of preparing claim
Assessed
loss of
earnings
Costs and earnings models in India US$
Fishing type
Trammel net
Hook and
line
Bagnet
Trawler
5.5
8.5
11
12.8
4
1
6
8
240
300
160
200
Total earnings
3 161
7 526
12 073
37 835
Variable costs
438
4 678
6 059
26 094
Crew
costs/share
362
52
2 682
2 439
Gear costs
76
0
0
1 218
Other costs
0
762
1329
6 339
Fixed costs
232
1 363
1 404
6 983
2 491
3 417
5 634
12 807
Vessel length
Crew
Days at sea
Net profit
A simple fishing business model
VARIABLE COSTS (ex labour)
SALES
Mean catch per fishing day
a
Mean price
b
Number of fishing days/year
c
Total annual revenue
d
= (a x b x c)
FIXED COSTS
Depreciation
e
Interest
f
Vessel repairs and maintenance
g
Other
h
Total fixed costs
i
Fuel and lubricants
l
Ice
m
Bait
n
Food and provisions
o
Marketing costs
p
Others
q
Total variable costs
r
=sum(l:q)
LABOUR COSTS
=sum (e:h)
Share costs, OR
s1
=(d-r)/2
Crew salary
s2
PROFIT
u
=d-(i+r+s)
Interruption losses per calendar
day
v
=(d-r)/365
SALES
Num ber of fis h
N2 = N1 x S
Weight of fis h
W = W1 x G
Average price at s ale
Total crop value
P
V
2
BIOLOGICAL FACTORS
Capacity of farm
=( N
2
xW
2
x P)
Num ber of crops / year
A Cubic m etres of cages
num ber of ropes etc
Nc
Num bers s tocked
N1
Weight at s tocking
W
Growth
Survival
Stocking dens ity s tart
G
S
D 1 = (N 1 x W1 ) / A
Stocking dens ity at harves t
D 2 = (N 2 x W2 ) / A
1
Mariculture
economic model
VARIABLE COSTS
Price of juveniles
Cos t of juveniles
a
b
Price of feed
Food convers ion ratio
Feed volum e
c
d
e
Feed cos t
Labour cos t
Trans port
Cons um ables
Proces s ing / s elling cos t
Total variable costs per crop
f
g
h
i
j
k
FIXED COSTS
Rent
Repairs and m aintenance
Depreciation
Interes t
Total fixed cost per crop
Total crop cost
GROSS PROFIT
NET PROFIT
= (a x N 1 )
Weight feed: weight fis h
= ( N 2 x W2 ) - (N 1 x W1 ) / d
= c xe
= b + f + sum(g:j)
l
m
n
p
q =
r =
s =
t =
sum(l:p)/N
q +k
V– k
V– r
c
/
SALES
Weight of product (kg per year)
Average price at sale
Total annual income
Pp
V =(W x P p )
PRODUCTION FACTORS
Capacity per working day (kg raw)
Cr
Working days / year
Yield raw: product
Efficiency / worker / workday (kg raw)
Fish processing
economic model
W =( Cr x Dw x Y)
Dw
Y
Er
Fuel / kg raw material
Ingredients / kg raw material
Fr
Ir
Other consumables / kg raw material
Or
VARIABLE COSTS
Price of raw material
Cost of raw material
Labour pay (per worker per workday)
Labour cost
Fuel price
Fuel cost
a
b = (a x Cr x Dw)
c
d = (Cr / Er) x c
Ingredients price
Ingredients cost
e
f = (e x Fr x Cr x Dw)
g
h = (g x Ir x Cr x Dw)
Consumables price
Consumables cost
i
j
Transport
Selling / marketing cost
Repairs and maintenance
Total variable costs per year
FIXED COSTS
Rent
Depreciation
Interest
Total fixed cost per year
Total cost s per year
GROSS PROFIT
= (i x Or x Cr x Dw)
k
l
m
n =(b+d+f+h+j+sum(k:m))
p
q
r
s sum(p:r)
t = n+s
u =V–n
SUBSISTENCE (ARTISANAL) FISHING
Unlikely to have supporting documentation
Likely to be in need of urgent compensation
Interim payments in hardship cases
SUBSISTENCE (ARTISANAL) FISHING
Sources of information:
Government statistics
Field surveys of similar unaffected fishing
Interviews
SUBSISTENCE (ARTISANAL) FISHING
Example of interruption
losses
Claim
Number of fishing units
Mean catch
Mean price, US$/Kg
Mean catch value, US$/unit/day
Activity, days/year
Number of days interruption
Total days lost
Value of lost catch US$
1 479
58
1.81
105
365
16.9
25 061
2 149 000
Assessment
1 479
62
0.97
60
169
6.5
9 614
576 840
Source
Govt. statistics
Field survey
Local market
Calculated
Field survey
Govt. fishing ban
Calculated
Calculated