Billionaire Businessman Potanin is Fined for Land and Water

Billionaire Businessman Potanin is Fined for Land and Water

Photo: http://tass.ru

The Federal Supervisory Natural Resources Management Service (Rosprirodnadzor) has issued a mamoth fine of almost 148 bln rubles ($2.044 bln) to Nornickel, the Russian nickel and palladium mining and smelting company belonging to the businessman Vladimir Potanin, for the environmental disaster in Norilsk. The company, in turn, announced that these demands were unfair, but its shares have started sliding.

At the end of May, there was a fuel spill from a huge tank owned by a subsidiary of Nornickel near Norilsk in the north of the Krasnoyarsk territory. About 21,000 tonnes of diesel fuel spilled out into local rivers and streams. Moreover, it happened in the conditions of fragile Arctic nature. Elimination of the disaster is still underway. After water and diesel are fully collected, one important issue has to be solved. What should be done with this substance? A preliminary decision suggests that fuel and lubricants will be separated and removed from the territory.

Nornickel is trying to justify the incident by global warming. Allegedly, permafrost under the tank has thawed, and, as a result, the groundwork sank. Even if it were true, it has nothing to do with the claims made by Rostekhnadzor. As it turned out, the watchdog agency had long ago made them as regards the state of the site. In addition, even one cursory glance at the industrial site was enough for the outside specialists of the oil and gas industry to raise the question in news reports – were there any normal bunds around the oil tanks on the site? The ones that should have normally contained the oil products, preventing their spill over a huge area.

Vladimir Potanin, the owner of Nornickel, almost immediately said that the company would bear all the expenses of the emergency elimination. “We’ll restore everything to its original condition,” he said, commenting on the environmental damage. Obviously, he scrambled to make big promises. The other day, Rosprirodnadzor announced the amount of claims against the company. It has to pay 738 mln rubles ($10,191,780) for the damage caused to the soil and 147 bln rubles ($2,030,070) for the damage caused to water bodies Daldyka and Ambarnaya rivers and Pyasino lake. The Russian environmentalists have long said that large corporations get away with very small fines for industrial emissions.

Nornickel has enough experienced lawyers and lobbying power to render all of Rosprirodnadzor’s claims. By the way, it has practiced this approach before. Back in 2007, Rosprirodnadzor tried to fine the holding for more than 4 bln rubles ($55,240,000.) Oleg Mitvol, then deputy head of Rosprirodnadzor, initiated an arbitration claim. However, Nornickel fought off all the claims.

But this time it is highly unlikely to get off lightly again. The company itself also understands that it has to pay. However, its executives might expect that the sum would be reduced. Nornickel made an official statement where it confirmed that it was ready to pay an indemnity. But according to the company, the sum of 148 bln is not correct. “The calculations of damage caused to water bodies and soil that was made by the Yenisei Interregional Department of Rosprirodnadzor, were based on the methodology that led to distortion of the results.”

The market reacted to the news about a possible fine by falling quotes of Nornickel shares. According to some analysts, they might lose up to half of their value before the yearend. For reference, in 2019, the consolidated revenue of the holding increased by 16% and reached $13.6 bln.

Chances are the environmental emergency in Norilsk may affect the political situation in the Krasnoyarsk territory. It has been always an area of confrontation between key Russian financial and industrial groups. Almost all of them have presence there. Nornickel is the most powerful operator. The taxes it pays make up about a third of the regional budget. In addition, the company has previously demonstrated its social position by investing in large-scale environmental upgrades of its operations. For example, the so-called “sulphur project.” It aimed at reducing sulphur dioxide emissions. And this is a few billions U.S. dollars.

However, all these efforts were derailed by the incident and the don't-care attitude the Nornickel divisions show towards the environment. The local officials just couldn't help but attack the company.

“Of course, the disaster led to a noticeably increasing tension between the local authorities and Nornikel,” political analyst Alexander Cherniavsky told wek.ru. “From the very beginning, after the information about the incident reached Vladimir Putin, there were attempts to give a runaround. The problem is that everyone in this situation is forced to act in accordance with certain patterns. The governor protects the interests of the territory, while Potanin stands on guard for the company. I believe that this might end up in a cold war, unless the federal center forces the parties to observe cold peace.”

Recenty, the local legislative assembly has held hearings of a regular report by the territorial authorities on how the consequences of the disaster are being eliminated. The issue of compensations was also raised. Seemingly, its size surprised not only the officials but Nornickel’s executives as well.

“There is no other way to make companies pay fines of this kind in Russia than via the courts so far,” said Yuri Lapshin, the head of the Krasnoyarsk territory government. “Recall the company stated that it wood voluntarily pay all the damages. The sum might change, but in any case, it will be huge and aimed at restoration of Taimyr peninsula ecosystems. Under the Budgetary Code, the fine for the damage of this kind is remitted to the municipal treasury. And these 148 bln rubles are several times more than the budget of the Taimyr region together with the budget of Norilsk.”

“The case of Nornickel might set the vector of environmental responsibility of enterprises for the upcoming years,” Alexander Kolotov, a member of the Public Council of the Federal Water Resources Agency, told wek.ru. “If the state insists on its own way and forces Nornickel to pay a significant sum for the environmental damage, it might become an unequivocal sign that other Arctic economic subjects will have to pay for possible damage (to the environment). If not, it might become clear that our government is ready to treat even the initiators of major environmental disasters with indulgence, so minor violations are likely be ignored at all.”

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